Jaguar Land Rover & Customs Connect

Steve Mabey – Senior Purchasing Manager JLR Neil Sheppard – Company Director Customs Connect James O’Neill – Company Director Customs Connect

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Best Procurement Consultancy Project

Project Title – Classification and Suspensions Review

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How and why did this work stream begin ?

• Cost workshops carried out with suppliers.

• A major strategic 1st Tier supplier suggested that JLR may have some “opportunity” with regard to levels of duty being paid on certain components.

• As the importer paying the duty JLR had to be the organisation that takes the action to challenge HMRC.

• Whilst JLR had a level of experience in Duty regulation etc this was mainly about compliance.

• How do JLR establish the validity of any potential opportunity ?…………. Enter Customs Connect , a boutique customs duty consultancy.

• Customs Connect expertise confirmed that there was a strong case for challenging HMRC on duty classification and suspension. CCL were engaged on a contingent basis, no savings no fees ! ……let the work begin.

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Project Overview

• All components bought and imported from outside the EU are subject to HMRC applying duty in line with duty classification which can be determined by a Binding Tariff Information ruling (BTI)

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• Jaguar Land Rover (JLR) and Customs Connect Limited (CCL) a boutique customs duty consultancy worked together on a Classification and Suspensions project, aimed at mitigating the cost of import customs duty payments on non-EU components for all future purchasing projects.

What are Binding Tariff Information rulings?

A BTI is a document issued by customs which gives legal certainty to economic operators with regard to the correct classification for goods they import or export.

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Aims & Objectives

• Led by Purchasing a cross functional JLR and CCL team was formed as it was believed that import customs duty was being overpaid on a small number of high value, high duty spend components.

• If these components could be reclassified (backed by BTI rulings from HMRC) it would be possible to expedite duty reclaims through HMRC and return cash to the JLR business.

• With CCL’s expertise in tariff classification JLR believed that CCL could provide an ongoing ‘real time’ classification advisory service and a tailored training package to both the Purchasing and Customs teams.

• Working in parallel with reclassification, CCL applied for autonomous duty suspensions on a small number of high value dutiable components which would bring JLR’s future duty liability on these components down to zero.

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The Process

• The focus was on the classification and suspension opportunities that would result in the greatest benefit to JLR.

• Risk management procedures were implemented to review those high value and high duty

liability components first.

• BTI’s applications were then submitted toHMRC on a select number of components, all but one were successful in reclassifying a component to a lower or zero rate of import duty. These rulings formed the basis of over 40 subsequent duty reclaims.

• The BTI applications are where the expertise of a specialist such as CCL really paid dividends.

• CCL’s use of smart tariff classification was an innovation, bringing to the project the ability to classify a component for customs purposes using the General Interpretive Rules, European law and utilising customs planning developed in-house to the benefit of JLR in both cash terms and compliance.

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The Process

• Not all BTI’s were agreed and accepted by HMRC

• HMRC v Land Rover (JLRs MMM) – HMRC disagreed with our classification opinion on a Multi Media Module (MMM). After further technical argumentation and three re-consideration submissions to HMRC, CCL and JLR took the decision to fight HMRC’s BTI ruling through the tax courts (HM Courts & Tribunals Service). CCL’s classification argument was presented and swiftly won by an appointed customs barrister.

• For these reasons, we find that the MMM falls within the definition “assembly for GPS system having a position determination function” and accordingly the appeals should be allowed.” Kevin Poole, Tribunal Judge

• This ruling formed the basis of a further £9 million duty repaid by HMRC.

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Organisational Benefits Achieved

• Although further work is being undertaken on classification and autonomous duty suspension applications are being considered by the European Commission the main targets have been met and in most cases exceeded, the initial target was the recovery of £12 million in customs duty.

• So far in re-classification JLR have received cash repayments from HMR&C of £41.5m

and cashflow benefits have been achieved by a reduction to JLR’s duty liability of over 58%. Cash from the duty recovery project has been used by Purchasing in an entrepreneurial way to reduce bought out material costs which then flow through for life of vehicles.

• Ongoing duty savings as a result of suspensions work is in the region of £6 million per

annum. The European Commission are already considering autonomous duty suspension applications made in time for the next generation infotainment system due to roll off the production line in 2015.

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Organisational Benefits Achieved

• Regular classification training has increased the knowledge bank held internally allowing

quicker and more accurate classification throughout the customs compliance team and enabled potential classification issues to be highlighted before port arrival.

• Proactive classification processes ensured that the first export shipments to China and

India were concluded without port delays. • Classification and suspension opportunities on components to be used in the new engine

production facility have already been reviewed before the first engine rolls of the production line in 2015.

• JLR Board recognition…….. "The team at Customs Connect provided a professional and efficient service. Their expertise with respect to Import Duty supported Jaguar Land Rover in realising opportunities which added significant value to its business." Dr Ralf Speth, CEO, Jaguar Land Rover

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Ian Harnett, Director of Purchasing, said: "JLR is now seen as a major force in the purchasing profession, with the capability to match its spend, scale and global reach."

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What the cash enabled

• JLR Purchasing obtained Board level approval at the start of the work stream that CCL would work together with JLR on a contingent basis, project therefore is self funding. No Finance approval of funds required.

• Any cash benefits realised would be retained within the Purchasing budget and used in an entrepreneurial way to give the best long term returns…….. A kind of “Dragons Den” approach.

• JLR Senior Purchasing commodity managers would “apply” for cash supported by a business case justification. The prime goal being to turn cash in to reductions in overall material cost as a % of revenue.

• For example…………

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Cash funded by Duty Work stream

Land Rover Commodity x – D&D repayment negotiation

Cash Out Dec 13 £xxx Jan 14 £xxx Total £xxx

Cash Flow In POA 2013/14 2014/15 £yyy £yyy Total £yyy

£ 38 Piece Cost

16 Months Payback IRR 60%

Flow Through Improvement In Material Cost as % of Revenue

Discovery Range Rover

Range Rover Sport

2014

Duty applied by HMRC Classification by commodity description

Customs Connect Subject matter experts

JLR/Customs Connect

HMRC

Apply for re-classification based on detailed commodity portfolio

Review application and make decision

Duty reclassified from 14% to 0%

Reclassification applies immediately and retrospectively for 3 years JLR purchasing and duty team + customs Connect

41 claims

£41.6 million

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58% Reduction in Duty Paid to date

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Thank You

Any Questions ?