Letter of Credit Explained: How LC Payment Works in International Trade
08/07/2026
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What is a letter of credit? A letter of credit (LC) is a written guarantee issued by a bank on behalf of the buyer. It
What is a T1 document?
A T1 document is a customs transit document used to move goods that have not cleared customs through one or more countries without paying duties at each border. The T1 guarantees to the transit country’s customs authority that import duties will be paid if the goods are not delivered to their declared destination. It is the standard transit document for goods originating outside the EU or Common Transit Convention area, which, since Brexit, includes goods from the UK moving through EU member states.
If someone has handed you a set of shipping documents and one of them says “T1”, or your freight forwarder has mentioned that a T1 will be raised on a shipment, this article explains exactly what that means and why it matters.
T1 documents became much more relevant for UK businesses after Brexit. Before 2021, goods moving freely between the UK and EU did not generally need them. That changed on 1 January 2021. Understanding what a T1 does, and what happens if one is missing or incorrectly completed, is now a practical necessity for anyone co-ordinating UK-EU freight.
A T1 document is the official customs transit document for external transit. “External” in this context means the goods have not been released into free circulation in the country or customs territory they are passing through.
Put plainly: a T1 tells the transit country’s customs authority “these goods are just passing through, duties have not been paid here, and we guarantee they will reach their declared destination.”
The T1 creates a bond between the shipper (or their guarantor) and the transit country’s customs. If the goods disappear in transit, whether stolen, diverted, or simply unaccounted for, the guarantee can be called in. The transit country loses nothing.
T1 is part of the Common Transit Convention (CTC) procedure. It applies when goods move through CTC member countries but have not been released into free circulation there. The document travels with the goods from the office of departure to the office of destination, where it is formally closed. This step is called “discharge.”
A T1 document is needed when goods with non-EU customs status move through one or more EU (or CTC) countries without clearing customs there.
The most common situations where a T1 is required:
UK goods transiting through the EU. Since Brexit, goods manufactured or stored in the UK no longer have EU free circulation status. A UK exporter sending goods to Switzerland via France and Germany, for example, must raise a T1 for the EU portion of the transit.
Goods arriving in the EU but not for EU customs clearance. If a container arrives at Rotterdam but is destined for a UK warehouse, it may transit through EU territory on a T1 before formal import procedures happen elsewhere.
Third-country goods transiting through the EU. Goods originating in China, the US, or any non-EU country that pass through EU member states on their way to another destination need a T1 if they have not cleared EU customs.
Goods entering the UK from a third country via an EU transit point. Goods arriving in the UK that stopped at an EU port or road hub without clearing EU customs may arrive under a T1 or equivalent transit document.
You do not need a T1 when goods have already been released into free circulation in the transit country. In that case, a T2 document applies (see the comparison section below).
Here is the sequence of events for a typical T1 transit movement.
1. Transit declaration raised. The principal (the party responsible for the movement, usually the sender or their freight forwarder) raises a transit declaration in NCTS, the electronic system used to manage transit movements. This covers the goods, their declared value, origin, destination, and the guarantee reference.
2. Guarantee provided. Before the movement is approved, a guarantee must be lodged with customs. This can be an individual guarantee covering this specific movement, or a comprehensive guarantee covering multiple movements (see the guarantee section below for detail).
3. Office of departure releases the goods. Customs at the point where the goods begin their transit journey, called the office of departure, authorise the movement and assign a Movement Reference Number (MRN). The MRN is the key identifier for this transit procedure.
4. Goods move under transit. The goods travel with the transit accompanying document (TAD), a printout from NCTS, plus the MRN. At any border crossing within the transit procedure, customs can verify the goods against the TAD.
5. Goods presented at the office of destination. When the goods arrive at the declared destination, they must be presented to customs there. This is the critical step. Customs verify the goods have arrived as declared.
6. T1 discharged. Once customs at the destination confirm the goods have arrived intact and as declared, the transit procedure is “discharged.” The guarantee is released. The movement is closed in NCTS.
What happens if goods are not presented? If the T1 is not discharged within the allowed time, customs at the office of departure will begin an enquiry procedure. If goods cannot be accounted for, the guarantee is called in and the principal becomes liable for duties in the transit country. This is why discharge matters. It is not an optional formality.
The T1 document exists within the framework of the Common Transit Convention (CTC), an international agreement that allows goods to move across multiple borders under a single customs transit procedure. Without it, goods would need to clear customs at every border crossing.
CTC members include:
Because the UK is a CTC member, it participates in the transit system. UK customs accept T1 and T2 declarations. UK-based freight can be used as an office of departure or destination.
The CTC is what makes T1 movements practical. Without it, a lorry driving from the UK to Switzerland via France and Germany would face full customs formalities at every border: UK exit, French entry and exit, German entry and exit, then Swiss entry. The CTC allows a single transit procedure to cover the entire movement.
The T1 is the external transit document within the CTC framework. It is used when goods are not in free circulation in the territory they are transiting through. If the goods were in free circulation in CTC countries, a T2 would apply instead.
Both T1 and T2 are transit documents used within the Common Transit Convention. The core difference is the customs status of the goods, specifically, whether they have been released into free circulation in the CTC area.
| Feature | T1 (External Transit) | T2 (Internal Transit) |
|---|---|---|
| Goods status | Not in free circulation — duties not paid in the transit territory | In free circulation — EU/CTC union goods or goods already cleared for import |
| Typical use | UK goods transiting EU; third-country goods transiting EU | EU goods moving between CTC countries via a non-CTC territory |
| Duty liability | Higher — goods could attract full import duties if diverted | Lower — duties already accounted for in originating country |
| Guarantee requirement | Usually required (and more substantial) | May be lower or waived depending on status |
| Post-Brexit relevance for UK shippers | High — UK goods no longer have EU free circulation status | Less common for outbound UK goods; applies when EU goods transit UK en route to another EU country |
| Document indicator | “T1” on the transit accompanying document | “T2” on the transit accompanying document |
The simplest way to remember the difference: T1 = goods that have not cleared customs in the transit territory. T2 = goods that have cleared customs (or are already in free circulation) and are just passing through.
Before Brexit, most UK-EU transit movements used T2 because UK goods had EU free circulation status. Since January 2021, UK goods moving through the EU use T1, not T2. This was a major change for freight co-ordinators who built their understanding of transit documents before Brexit took effect.
The party responsible for raising a T1 is called the principal. This is the party who takes legal and financial responsibility for the transit movement, specifically, responsibility for presenting the goods at the destination customs office and for the guarantee.
In practice, the principal is almost always one of the following:
The freight forwarder. This is the most common arrangement. The shipper engages a freight forwarder who holds a comprehensive guarantee and is authorised to submit NCTS declarations. The forwarder raises the T1 on the shipper’s behalf as part of the overall freight management service.
The customs broker. Some shippers use a dedicated customs broker for their transit declarations, particularly on complex movements or where specific customs expertise is needed.
The haulier. On road freight, the haulier may be the principal, particularly if they hold their own guarantee and NCTS access.
The shipper directly. Larger businesses with high transit volumes sometimes raise their own T1 declarations, holding their own comprehensive guarantee and NCTS access. This is less common but not unusual for major logistics operations.
If you are a shipping co-ordinator at an import or export business, you are unlikely to be raising T1 documents yourself. Your freight forwarder does this. But you should understand who is named as principal on the T1, because that party carries the liability for the movement. If the T1 is not discharged and duties are assessed, the principal is the party customs will pursue.
Every T1 transit movement requires a customs guarantee. This is a financial security that covers the potential import duties and VAT that could be charged if the goods are diverted or do not arrive at their declared destination.
The guarantee is not a payment. It is a security. Think of it like a bond or a deposit. If the transit completes without issue and the T1 is discharged, nothing is paid. The guarantee is simply released. If something goes wrong and duties become liable, customs draw on the guarantee.
There are two main types of guarantee:
Individual guarantee. This covers a single transit movement. It is typically a bank guarantee or similar instrument provided for one specific shipment. Individual guarantees are less common for regular transit movements because they require separate arrangement for every shipment.
Comprehensive guarantee. This covers multiple transit movements up to a set financial limit. Most freight forwarders, customs brokers, and hauliers who regularly move goods under transit hold a comprehensive guarantee. This is more efficient. The same guarantee covers a rolling programme of movements without needing a new security instrument each time.
Guarantee waiver. In some cases, authorised businesses can operate without a guarantee, or with a reduced guarantee amount. This typically applies to businesses with Authorised Consignor or Authorised Consignee status, who have demonstrated a reliable compliance track record to customs.
The value of the guarantee must be enough to cover the potential duties on the goods in transit. For high-value shipments, electronics, pharmaceutical products, and luxury goods, guarantee requirements can be substantial. A comprehensive guarantee for a busy freight forwarder moving mixed goods might need to cover hundreds of thousands of pounds in potential duty liability at any given time.
T1 movements are managed electronically through the New Computerised Transit System (NCTS). Paper T1 documents no longer exist in the traditional sense. The transit procedure is now an electronic declaration in NCTS, and what travels with the goods is a printout called the Transit Accompanying Document (TAD), which carries the Movement Reference Number (MRN).
NCTS is the EU’s (and now the UK’s) electronic customs transit platform. When a T1 declaration is submitted in NCTS:
NCTS has undergone major updates since Brexit. The UK operates its own instance, NCTS GB, which is separate from NCTS EU but interoperates with it under the Common Transit Convention. When goods move between the UK and EU under a transit procedure, declarations are handled across both systems.
From a practical standpoint: if you are co-ordinating a shipment and your freight forwarder mentions an MRN, that is the NCTS reference for the transit movement. The MRN is what customs will use if they need to verify the goods at a border or on arrival.
Brexit changed the role of T1 documents fundamentally for UK-EU trade. This is the most important section for anyone who has been working in UK shipping since before 2021.
Before Brexit (pre-1 January 2021): UK goods had EU free circulation status. Goods moving between the UK and EU, or transiting through EU countries on their way to a third country, generally used T2 documents or no transit document at all within the EU single market. The customs union meant goods flowed freely between member states.
After Brexit (from 1 January 2021): The UK left the EU customs union. UK goods lost EU free circulation status overnight. From that date:
The practical impact for UK freight co-ordinators was immediate and significant. Shipments that previously moved to European destinations without transit document overhead now required T1 procedures. That means guarantee requirements, NCTS declarations, and discharge obligations that did not exist before.
Dover and the Channel Tunnel routes (covered in the next section) were particularly affected, given that almost all UK-EU road freight passes through these points.
The vast majority of UK-EU road freight moves through two crossing points: Dover-Calais (via ferry) and the Channel Tunnel (Folkestone-Calais via Eurotunnel). Both routes involve crossing from UK customs territory into EU customs territory, which means transit documents are needed for goods that have not cleared customs on the EU side.
For a UK exporter sending goods by road to a customer in France, the T1 procedure typically works like this:
For goods transiting through France to destinations further into the EU, such as Germany, Poland, or Spain, the T1 covers the entire EU transit leg. Intermediate border crossings within the EU do not require extra declarations under the CTC procedure. The T1 covers the full movement.
The high volume of traffic through Dover and the Channel Tunnel means NCTS declarations, guarantee requirements, and discharge procedures are processed in very high volumes daily. Errors or delays in T1 processing at these crossing points can create congestion. Border delays at Dover post-Brexit have, in part, reflected the extra administrative overhead of transit documentation that did not exist before 2021.
Getting a T1 wrong is not just a paperwork inconvenience. Errors can result in goods being held at the border, delayed transit, or, in serious cases, the guarantee being called in and duties assessed. Here are the most common mistakes.
Incorrect goods description or quantity. If what is declared in NCTS does not match what is physically on the truck, customs at any inspection point can stop and query the movement. Errors in weight, quantity, or commodity description are among the most common causes of hold-ups.
Wrong office of destination. The office of destination must be an authorised customs office capable of receiving and discharging T1 movements. Using an incorrect code, particularly if goods are going to a bonded warehouse or a specific customs facility, can mean the T1 cannot be properly discharged.
Failure to present goods at the destination customs office. Discharge does not happen automatically. The goods must be physically presented to customs at the destination. If a haulier delivers goods directly to a customer without completing the customs presentation, the T1 is not discharged. This triggers an enquiry, and the principal is liable.
Guarantee shortfall. If the comprehensive guarantee limit is exceeded because too many open movements are running at the same time, NCTS will reject new declarations until the limit is cleared. High-volume forwarders need to manage their guarantee utilisation actively.
Expired transit time limit. T1 movements have a maximum time allowed for transit. If goods take longer than the permitted period, for example because of a delivery delay or a routing change, the movement can be flagged as overdue before it is discharged.
Using T2 when T1 is required. Post-Brexit, this is a specific risk. Co-ordinators or forwarders who built their processes before 2021 may have procedures based on T2 movements. UK goods now need T1, not T2, for EU transit. Using the wrong document type creates compliance problems that can be difficult to unwind.
If you are co-ordinating road freight, you will regularly see two documents travelling with the same consignment: a CMR and a T1 (or its TAD printout). They are different documents doing different jobs.
CMR (Convention on the Contract for the International Carriage of Goods by Road) is a road consignment note. It records the contract of carriage between the sender, the carrier, and the recipient. The CMR covers:
The CMR is a transport contract document. It is not a customs document.
The T1 transit document (presented as the TAD from NCTS) is a customs document. It records:
The two documents work alongside each other. The CMR governs the haulier’s liability and the contract of carriage. The T1 governs the customs status of the goods in transit. Customs authorities check the TAD; the recipient and the haulier rely on the CMR. Both travel with the load.
On a typical cross-Channel road shipment from the UK to Germany, the driver will have: a UK export declaration reference, a T1 TAD with MRN, and a CMR. Missing any one of them creates problems, but at different points in the process and with different consequences.
Here is a concrete example of how a T1 works on a typical post-Brexit UK-to-EU road shipment.
The scenario: A Birmingham-based manufacturer ships machine parts to a customer in Munich, Germany. The parts are manufactured in the UK and have never cleared EU customs. The shipment travels by road via the Channel Tunnel (Folkestone-Calais).
Step 1: Freight forwarder raises a T1 in NCTS. The forwarder acting for the Birmingham manufacturer submits an NCTS declaration. The office of departure is the UK inland clearance depot where the goods are loaded. The office of destination is the customs office serving Munich. The forwarder uses their comprehensive guarantee to cover the movement. NCTS issues an MRN: for example, 22GB12345678901234X6.
Step 2: UK export declaration filed. Separately from the T1, an export declaration is filed in the UK’s Customs Declaration Service (CDS). The T1 and the export declaration are linked but are separate procedures.
Step 3: Truck travels to Folkestone. The driver has the TAD with the MRN printed on it, plus the CMR consignment note. At the Channel Tunnel terminal, UK customs check the export declaration. The truck boards the Eurotunnel service to Calais.
Step 4: Arrival at Calais/Coquelles. French customs (EU customs) at the Channel Tunnel arrival terminal record the goods’ arrival in the EU under the T1. They do not need to clear the goods for EU import. The T1 shows the goods are in external transit, heading to Munich.
Step 5: Truck drives to Munich. The T1 covers the entire EU transit leg. There are no extra customs formalities at the France-Germany border. The truck drives directly to the customer in Munich.
Step 6: Goods presented to Munich customs office. Before or at delivery, the goods must be presented to the designated office of destination. The driver (or the consignee’s appointed customs representative) presents the goods and the TAD. German customs verify the goods match the declaration.
Step 7: T1 discharged. NCTS records the discharge. The guarantee is released. The transit procedure is closed. The Munich customer’s customs broker then files an EU import declaration for the machine parts, paying any applicable EU import duties and VAT.
The Birmingham manufacturer’s freight co-ordinator needs to know: which forwarder is raising the T1, what MRN has been issued, and, critically, to confirm with the German customer that their customs broker has arranged to receive and discharge the goods at the destination customs office. If that last step does not happen, the T1 is not discharged and the UK forwarder’s guarantee remains exposed.
What does T1 stand for?
T1 stands for “External Transit.” The “T” refers to the transit document type under the Common Transit Convention, and “1” denotes external transit status. External means the goods have not been released into free circulation in the transit country. The designation appears on the Transit Accompanying Document (TAD) that travels with the goods.
How long is a T1 document valid for?
The time limit for a T1 transit movement depends on the mode of transport and the distance covered. Road transit movements are typically allowed between 1 and 8 days. If the goods do not arrive at the destination customs office within the permitted time, the movement is flagged as overdue in NCTS and an enquiry procedure begins. Your freight forwarder will set the time limit when raising the declaration.
How much does a T1 document cost?
There is no fixed government fee for a T1 document itself. The cost is the professional fee charged by your freight forwarder or customs broker for raising the NCTS declaration, typically between £30 and £80 per movement, depending on the forwarder and the complexity. If you are using a third-party guarantee provider, there may be a guarantee usage fee on top of this.
Can I raise a T1 document myself?
You can, in principle, raise your own T1 declarations if your business is registered with HMRC for NCTS access and you hold a customs guarantee. In practice, most businesses use a freight forwarder or customs broker. Getting NCTS access and maintaining a guarantee is a significant administrative commitment. Unless you are moving very high volumes, the cost of outsourcing to a forwarder is almost always lower than managing it in-house.
What happens if a T1 is not discharged?
If a T1 is not discharged, because the goods were not presented to the destination customs office or the time limit expired, the customs authority at the office of departure begins an enquiry procedure. They contact the office of destination and the principal. If the goods cannot be accounted for, customs can assess import duties against the principal’s guarantee. Penalties can also apply. In serious cases, undischarged T1s can trigger investigations into diversion of goods.
Do I need a T1 for every UK-EU shipment?
Not necessarily. A T1 is required when goods with non-EU customs status are transiting through EU territory without being cleared for EU import at the entry point. If UK goods are being cleared for EU import at the first EU point of entry (for example, at Calais), a T1 is not needed for the onward movement. The import clearance happens at the border. A T1 is specifically for movements where the goods will not be imported at the entry point and will travel further under customs control.
What is the difference between a T1 and a carnet?
A T1 covers goods in transit that will be imported at the destination. Duties are suspended during transit and paid on arrival. An ATA Carnet is used for temporary exports: goods that will be returned to their origin without being sold or permanently imported. Carnets are used for exhibition samples, professional equipment, and demonstration goods. If your goods are going abroad to stay, a T1 (where applicable) is the relevant document. If your goods are going abroad temporarily and coming back, an ATA Carnet may be more appropriate.
Who is responsible for discharging the T1?
The principal, the party who raised the T1 declaration, is ultimately responsible for ensuring the transit procedure is discharged. In practice, discharge is carried out by the consignee or their customs broker at the destination, who presents the goods to the destination customs office. But legal responsibility for the movement, including the consequence of non-discharge, rests with the principal. Confirm with your freight forwarder and with the recipient’s customs broker that discharge arrangements are in place before the goods leave.
A T1 document is an external transit document used when goods that have not cleared customs move through one or more Common Transit Convention countries.
Since Brexit, UK goods moving through EU member states need a T1. UK goods no longer have EU free circulation status, so they travel as external transit goods through the EU.
The T1 is a customs guarantee. It assures the transit country’s customs that duties will be paid if the goods do not arrive at their declared destination.
T1 documents are electronic, not paper. They are submitted through NCTS (New Computerised Transit System). The Transit Accompanying Document (TAD) is a printed record of the NCTS declaration and carries the Movement Reference Number (MRN).
The principal, usually the freight forwarder or customs broker, is the party responsible for the transit movement and the guarantee. If the T1 is not discharged, the principal is liable.
Discharge is not automatic. The goods must be physically presented to customs at the office of destination. Failure to discharge triggers an enquiry and can result in duty assessments.
A T1 is not the same as a CMR. The CMR is a transport contract document covering the haulier’s liability. The T1 is a customs transit document. Both travel with road freight and serve different purposes.
The T2 document is used for EU goods in free circulation transiting through non-EU territory. T1 = goods not in free circulation. T2 = goods already in free circulation. Post-Brexit, UK goods moving through the EU are T1, not T2.
Dover and the Channel Tunnel are the primary crossing points for UK-EU road freight and process T1 movements in very high volumes every day. Understanding how T1 documents work at these points is practical knowledge for any UK freight co-ordinator.
This article is part of a learning path — return to explore more topics.
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