For UK manufacturers who import raw materials, components or semi-finished goods for processing before re-export, Inward Processing Relief (IPR) offers a significant financial opportunity. By suspending customs duty and import VAT on goods that will be processed and re-exported, IPR can dramatically reduce the landed cost of imported inputs and improve competitiveness in export markets. Yet IPR remains underutilised, partly because of its reputation for administrative complexity — a reputation that, in many cases, overstates the burden relative to the savings available. What Is Inward Processing Relief? IPR is a customs special procedure that allows goods to be imported into the UK with suspension of customs duty and import VAT, provided they will be used in a manufacturing or processing operation and the resulting products (or the original goods in some cases) will be re-exported. IPR is authorised by HMRC and subject to conditions relating to: - The nature and identity of the goods - The processing operations to be carried out - The ratio of imported goods to processed output (the 'yield' or 'BOM' — Bill of Materials) - The timeframe within which goods must be re-exported (the 'period of discharge') - Record-keeping and account management requirements Types of IPR There are two main forms of IPR: 1. Suspension System: Duty and VAT are suspended at import and the obligation is discharged when the processed goods are re-exported. No duty is paid unless goods are diverted to the UK market. 2. Drawback System: Duty is paid at import but can be reclaimed on re-export of the processed goods. This is less common and less financially advantageous than the suspension system. The suspension system is generally preferable for businesses with consistent export activity. Who Benefits Most from IPR? IPR is particularly valuable for: - Manufacturers who import components or sub-assemblies from non-UK/non-preferential-origin suppliers and incorporate them into goods for export - Food and beverage processors who import ingredients from higher-tariff origins for processing and re-export - Aerospace, automotive and electronics manufacturers handling complex supply chains - Businesses processing or repairing goods for re-export under warranty or service contracts The higher the import duty rate on the incoming goods, the greater the IPR saving. Authorisation Process To use IPR, businesses must apply to HMRC for an authorisation. The application requires: - Details of the goods to be imported - A description of the processing operations - Evidence of re-export activity (existing contracts, historical data) - BOM/yield information - Details of record-keeping systems HMRC may request an economic test to confirm that the use of IPR does not prejudice the interests of UK producers of equivalent goods — though this is not always required and is generally straightforward to satisfy. Record-Keeping and Compliance IPR requires robust record-keeping to demonstrate that imported goods under authorisation are used in eligible processing and that discharge obligations are met within the authorised period. Records must include: - Stock records linking imported goods to processing operations - Bills of Materials or yield calculations - Export evidence (MRNs, transport documents) - Bills of discharge submitted to HMRC at the end of each discharge period Deficiencies in IPR records are among the most common findings in HMRC customs audits of manufacturing businesses. Interaction with Rules of Origin Important note: goods processed under IPR may not qualify for preferential origin under UK FTAs. Using foreign inputs under IPR suspension and then claiming preferential origin on re-export can result in incorrect origin claims. Businesses should seek specialist advice where both IPR and origin preferences are relevant. Conclusion For UK manufacturers with meaningful import activity on inputs used in export goods, IPR is a legitimate and valuable duty management tool. The key is establishing a sound authorisation, maintaining compliant records and reviewing yield and BOM data regularly. Professional customs advisory support can significantly ease the implementation process.