There has been a marked change in the way that EU customs compliance is measured. The "outcome" will no longer suffice even if it results in the correct amount of duty being paid. As we have discussed in previous issues, the bar has been raised with regard to customs compliance. Authorised Economic Operator, Senior Accounting Officer and Customs Simplified Procedures all now require for businesses to prove that are they complying with customs regulations but also that they have clear internal procedures showing how they are complying with the regulations.

What is meant by internal procedures?

The "internal procedures" required vary from clear and documented chains of responsibility to clearly defined processes showing how you have come up with your Commodity Classification Codes, your Customs Valuations and that your goods meet the various Origin Rules to name a few.

Benefits of robust internal procedures

Robust internal procedures carry with them a number of benefits:

(1) Control over customs matters

Traditionally, a large number of businesses have outsourced customs control and responsibilities to agents and freight forwarders. We have spoken to many businesses who said that this was a conscious decision as it was "one less problem to have to face". However, under EC Customs Law, legal liability rests with the importer (i.e. the business) and any mistake made by the agents or freight forwarders are quite literally "paid for" by the business. Robust internal procedures allow you as the business to be in control and minimises your exposure to potential risks and penalties. Although this will result in additional responsibilities for you, it will also increase your "reliability" as a trading partner which will become vital in the next few years.

(2) Greater certainty, minimising risk and allows errors to be spotted and corrected quickly
Robust internal procedures allow you to spot any errors and correct them quickly before the materiality of the errors damage the business. For example in the following scenario there are two very different outcomes:

Companies A and B make the decision to source a new (identical) product from new suppliers in China. The value of the import of this product is £200,000 per month.

Company A leaves the classification of the product to its freight forwarders that allocate a commodity (CN) code with a duty rate of 5% to the product.

Company B has robust internal procedures that require a full classification exercise before the product is imported into the EU and periodic reconciliation exercises to ensure the correct codes are indeed being used. The result of the exercise is that Company B allocates a different CN Code with a duty rate of 7.5% and instructs its freight forwarders to use that code.

Company A continues to use the CN Code for a period of three years until it is audited by HMRC which discover that the CN code used is incorrect and the duty rate should actually be 7.5%. Company A has paid £360,000 import duty over the three years but now faces a demand for underpaid duties of £180,000 plus penalties for incorrect declarations.

Company B discovers during a reconciliation exercise after 1 month that the freight forwarder has allocated the incorrect (5% rate) code to the products. It instructs the freight forwarders of the error and of the need to correct the declarations and declare them under the 7.5% duty rate code. Company B then pays the additional £5000 duty that it owes and the situation is regularised (minus penalties because Company B voluntarily notified HMCR of the error.)

The material difference is clear to see. Company A has to face a back duty demand of £180,000 plus penalties whereas Company B amended the mistake and paid the additional £5000 duty owed with no penalties owed.

(3) Maximising the chances of passing a customs audit and achieving customs (re) authorisations
If you have robust internal procedures then the chances of passing a customs audit increase exponentially. Similarly, if you can prove to HMRC that you have got procedures in place then achieving customs authorisations or reauthorisations should merely become a matter of filling out the forms rather than building procedures before, during and after application.

How can ITS help?

ITS has been engaged by numerous clients to assist them in building world-class customs procedures and internal processes. We have an enviable record of client satisfaction and project success rate. We seek to understand how each business works and the market they are operating in and design unique processes and procedures that suit that particular business. If you would like to discuss the benefits of internal customs procedures or would to arrange a free first consultation then please contact us on (01905) 619229 or alternatively email us at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .