Much has and will be written about the SAO provisions but our focus is on the inclusion of customs duties within the new measures.

UK registered companies with turnovers of greater than £200m or assets of over £2bn now have an obligation to notify HMRC of the name the SAO. In most companies the SAO is likely to be the Finance Director.

Appropriate Customs Systems

The SAO must take reasonable steps to establish and maintain appropriate tax accounting systems or specifically in our context customs duty systems. He or she will have build-in visibility to monitor when those systems to identify where they are not appropriate and make the necessary changes. The systems need to be end-to-end to include:

• Having a process for gathering and recording customs data in a systematic way;
  
• Understanding the key customs duty risks;
  
• Designing and implementing control activities to manage those risks, including:

(a) The division of tasks between the person making the customs entries and managing customs compliance

(b) Ensuring people have the right skills, tools and time to carry out their responsibilities

(c) Ensuring a mechanism for communicating given customs planning requires the co-operation of purchasing, accounts, logistics, sales etc.

• Monitoring those procedures with reference to checklists, KPI etc.

Customs duty is a transaction based tax and is therefore similar to VAT for the purposes of SAO. Any systems and procedures are unlikely to require detailed scrutiny of the hundreds or thousands of imports. However, like the tax codes for VAT it will be important to ensure you have robust procedures for the key elements determining your customs duty cost, including

• The classification or commodity codes of imported goods;
  
• The country of origin rules, especially if importing licensed products or taking advantage of trade agreements;
  
• The customs valuation of imported goods, especially if this includes related party transactions, adjustments to the price paid for the goods, additions or deductions from the customs value (e.g. royalties, tooling, commissions, finance charges, provision of materials etc.)
  
• Customs duty relief schemes which require satisfaction of additional conditions, returns etc

(1) Paragraph 16, SC

Not tweaking but building

Before becoming law Schedule 46 of the Finance Bill was subject to significant amendments in an attempt to minimise additional obligations imposed on business. The SAO provisions have now been limited to larger businesses as it was thought that this should not have a significant impact on compliance costs as large businesses should already have procedures and systems in place to satisfy these provisions.

Finance Directors and finance teams of medium-to-large companies usually have a good understanding of mainstream tax issues. However, customs duties are often a mystery and much of the customs work is delegated to the companies logistics people and freight forwarders. There are some reasonable excuse provisions for failing to comply with the Act, however, HMRC will not accept the excuses of ‘lack of information' or ‘ignorance of customs law'.

Although companies may need to refine and augment procedures for other taxes in light of the Act, you may need to build some customs procedures and systems from scratch.

Where functions are outsourced to third parties, the SAO will be expected to take reasonable steps to ensure that the third party is suitably competent, qualified and controlled to ensure that transactions which impact on tax are properly accounted for.

Even where customs compliance is delegated to third parties the importer remains legally responsible for both the customs duties and also the accuracy of any declarations made in the company's name. Although some of the information needed to complete customs declarations can be found on documentation accompanying the goods, the agents will need accurate information from the company in order to comply with the customs regulations.

Finance Directors may need to carry out a considerable amount of work to understand how their company manages customs compliance and to add the necessary systems and policies necessary to be able to meet their obligations under the legislation. This work will have to be carried out with some urgency and will compete with the other taxes that the SAO provisions cover. All this must take place in  addition to the existing workload that FD's have in steering companies through these difficult times.

Under the legislation an SAO will be expected to declare a certificate to HMRC "signing-off" the accounting activities for all the listed taxes in the legislation. Even if eight of the nine different areas of taxation are organised properly, it would only require one of them to be inaccurate or poorly organised for the potential penalties to come into force.

Impact

An individual SAO can receive total penalties of £10,000 for any financial year for failure to comply with the main duty regarding establishing and monitoring appropriate tax accounting arrangements and failure to provide an accurate certificate within the prescribed timescales. Furthermore, there could be a penalty for the company where it fails to notify HMRC of the name(s) of the person who was the SAO throughout the financial year.

Failing to meet your customs obligations can also give rise to:

• Additional customs duties going back up to three years;
  
• Civil Penalties of up to £2,500 per innocent error;
  
• Delays in customs clearance; and,
  
• Difficulties in gaining authorisation for ongoing duty relief schemes and trade facilitative arrangements
  

How can ITS help?

ITS can help you meet your SAO obligations by:

• Reviewing your customs operations and procedures against your legal obligations to provide you with a clear understanding of where you are and where you need to be;
  
• Working with you to implement robust and transparent procedures which include controls and reports to monitor ongoing performance;
  
• Providing training to operational personnel so they have the requisite skills to carry out their work;
  
• Reviewing your third party arrangements with freight forwarders to ensure adequate control and delegation of any customs matters;
  
• Supporting you with ongoing compliance when there are business or customs changes going forwards

A very useful by-product of this work is that it highlights customs cost savings, and potential reclaim opportunities. It also goes a long way to preparing your business for Authorised Economic Operator (AEO). (See article AEO- A customs World of Haves and Have Not's)

To arrange a free introductory meeting or to discuss any issues that you may have drop us an email at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it or alternatively call us on (01905) 619229.