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Last updated: 10th March, 2021

Online Business Academy

Considerations for UK businesses trading across borders

Trading across borders can open a world of opportunities, from a larger pool of clients to sourcing cheaper materials or goods. Whether you’re importing into the UK or exporting from it, there’s plenty to know about the rules and regulations of international trade.

In this guide, we will cover the benefits to international trade, as well as everything you need to know about importing and exporting.

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Why trade internationally?

International trade creates a more competitive market with more competitive prices. Here are the top six benefits of opening your business to international trade:

1. Increased access to resources

By opening your business to international trade, you have greater access to goods and services that you would not find domestically. This can help you improve the quality of your product or make it more unique on the market.

2. Competitive prices

As well as the wider range of materials and resources available across the world, you may find that prices become more competitive as well. You may purchase the exact same materials but at a cheaper cost, enabling you to have a higher profit margin.

3. Wider client base

Rather than importing goods from other countries, you may be interested in exporting your goods elsewhere. By shipping internationally, you are expanding your client base drastically. You may also find your product is more popular or more suited to different markets  – whether that’s due to climate or cultural interests.

4. Attract investment

Businesses that trade internationally are often more attractive to investors. You will improve the image of your company by expanding your trading operations, which could see a rise in portfolio investments – investments in financial assets that are expected to grow in value – or foreign direct investment (FDI) – international investments from one company to another.

5. Expand employment

Not only can international trade improve your image among investors, you may also find you attract more qualified employees. And, the wider your operations, the more staff you will need to employ or contract.

6. Spread your risk

If you run operations in more than one market, you are spreading your potential risk. From corporate tax increases to a national recession, if you’re also trading in other countries, you can optimise your business in certain markets while others aren’t doing as well.

What you need to know about international trade

Shipping restrictions and compliance

In the UK, when sending or receiving goods – whether domestically or internationally – there are restrictions in place to ensure no one is harmed by transporting the item. However, there are more restrictions to consider when sending goods abroad, as you must comply with both national and international regulations.

Items you may be used to trading nationally may be deemed restricted or prohibited in other markets. International customs are in place to ensure that the shipment doesn’t contain any restricted or prohibited items. If the item is restricted, it can be sent but under certain conditions, such as how it is packaged or labelled. Restricted items include drugs, alcohol, aerosols, firearms, batteries, perishable items and tobacco. You will usually have to spend more on shipping-restricted items, due to these packaging requirements. It is illegal to send prohibited items.

It is the responsibility of the sender to ensure their goods are not restricted or prohibited. There are sanctions in place with specific countries, and different couriers will have different rules, so you should thoroughly research potential export opportunities before committing to operational changes.

Export licence

If you are planning to ship restricted items internationally, you may need an export licence. The type of licence you’ll need will depend on what you are exporting and where you are exporting it to. You can use the government website to find out which licence you will need.

Imports

The receiver of the parcel will be subject to paying tax and duty fees, especially if you’re dropshipping from an overseas supplier who is sending the goods to your customer directly. Therefore, this is something to consider when importing goods. The courier transporting your goods will contact you with instructions on how to pay your fee and will deliver your package once you have paid. They will usually hold your goods for approximately three weeks before sending it back.

  • Customs Duty is applied to parcels sent from other countries and is priced based on the value of the goods:
    • Parcels under £135 are not subject to the duty.
    • Parcels valued between £135-£630 are usually subject to a duty of 2.5%.
    • For deliveries worth over £630, the duty will depend on what the goods are.
  • Excise Duty is charged on tobacco and alcohol sent from other countries.
    • It does matter if you have purchased the goods or they are sent to you as a gift.
    • Cigarettes are charged at 16.5% of the retail price plus £4.90 on a packet of 20, and hand rolling tobacco is £8.14 per 30g packet.
    • Alcohol prices very on the type of drink and the alcohol percentage – the higher the percentage the higher the fee. You can view all the fees here.

Exports

When exporting goods, you will have to fill out an export declaration form. This document will provide information on the delivery, such as what it is, its volume and its value.

Business insurance

Whether you’re importing or exporting, you must have certain insurance policies in place to ensure your goods and business are secure – no matter what happens.

Marine cargo insurance

Despite the name, this type of insurance covers more than just sea cargo. Insuring your goods from the moment they are in transit to the moment they arrive – whether that’s on land, over sea or in the air – this policy will ensure your stock is protected against loss or damages.

Political risk insurance

If you are trading in emerging economies, this insurance policy will cover you against confiscation of goods or failure of payment if local authorities get involved. Your coverage should also protect against political instabilities, such as war or riots, and or issues that could invalidate your claim to business with a country.

Trade credit insurance

Also known as business credit insurance or export credit insurance, this type of policy can protect you against clients who fail to pay for your service.

Foreign exchange contract insurance

This policy will mitigate the risk of losing money through conversion rates. As the value of currency and conversion rates are constantly changing, this is an important form of insurance to have to protect your business.

PagoFX

To make international payments simple, fast and safe, use a money transfer service app like PagoFX, backed by global bank Santander. Using real-time mid-market exchange rates and transparent fees, PagoFX is a secure way to pay international businesses when importing goods to the UK.

This article is provided as general information purposes only and is not intended to cover all aspects of the topic. We recommend that you take professional and specialised advice before taking, or refraining from, any action based on the content of this publication, as this article is not intended to constitute expert advice. We do not guarantee, explicitly or implicitly, that the content of this article is accurate, complete or up-to-date. The information in this article does not constitute legal, tax or other professional advice from PagoFX or its affiliates.