Customs Planning in the new Financial Year

17 March 2011

Effective management and planning of EC Customs Law enables businesses to not only maximise potential benefits but also to mitigate their risks. What better opportunity for businesses to be proactive than the end of the current and beginning of the next Financial Year?

 

Have you mitigated your risks?

Every level of your international sourcing operations opens up its own specific customs-risks. You may well have looked at these risks at some time but any business changes such as sourcing a new product, sourcing from a new supplier, switching country of supply, changing to your contractual terms can have a significant impact on your compliance risks.

With the raising of the bar of customs compliance associated with the Modernised Customs Code (MCC), Senior Accounting Officer (SAO) or the introduction of Authorised Economic Operator (AEO) certification, the penalties for non-compliance could result in your business being regarded as a weak link in the international supply chain and could see your competitors step in to fill the void.

Effective Customs Planning enables you to identify and mitigate your risks whilst maintaining and increasing your competitiveness on the international plane.

 

Mapping & Documenting Procedures

‘Compliance by accident’ is no longer sufficient to gain a clean bill of health in the customs arena. SAO, AEO and CFSP obligations all require that businesses have documented processes and procedures in place in order for a business to be deemed to be compliant. In the case of AEO and CFSP, authorisation will not be granted unless the appropriate processes and procedures are in place.

Passing an HMRC Customs Audit

HMRC, like all national customs authorities, is under extreme pressure from Brussels to collect all customs-duties owed to the EU. However, in light of national spending cuts, HMRC is being forced to streamline and work within an environment of constant change and cutbacks.

In spite of the reductions, HMRC appear to have tightened their procedures. Businesses are finding that claims and applications are being examined a lot more thoroughly than they were before and that they must jump through more hoops before their claims and applications are processed. Businesses are also finding that HMRC are auditing businesses more closely and picking up on more “irregularities” at audit.

HMRC operates on the premise that if you voluntarily disclose any compliance issues then the potential penalties that you face will be reduced significantly if not waived completely. However, if they turn up to audit you and discover compliance issues or failures then they will more than likely throw the proverbial book at you.

Customs Planning will not only allow you approach an audit confidently but it will build the processes and procedures necessary for duty-relief and AEO or SAO compliance.

Have you maximised your benefits?

Customs Planning allows you to spot cost-saving opportunities or to reclaim overpaid duties going back up to three years. The sooner you make a claim the sooner you will see the benefits. Overpayment of duties due to a misclassification of your products is a classic example of this.

In the table below, a company has been importing goods under a commodity code that attracts a 10% duty rate. As it imports £1m worth of that product, it is paying an annual duty bill of £100,000. A classification review revealed that the company was classifying the goods to an incorrect commodity code and should have actually been importing to a code that attracts 5% import duty. Thus it has been paying £50,000 per annum too much in terms of customs duties owed. European Customs Legislation allows in a case like this to go back three years to reclaim overpaid duties so the company is able to reclaim £150,000 over a three year period which is a significant cash-flow boost!

 

Year

2008

2009

2010

2011

2012

Imports

£1m

£1m

£1m

£1m

£1m

Duty Rate A

10%

10%

10%

10%

10%

Duty Cost A

£100,000

£100,000

£100,000

£100,000

£100,000

Duty Rate B

5%

5%

5%

5%

5%

Duty Cost B

£50,000

£50,000

£50,000

£50,000

£50,000

Difference

£50,000

£50,000

£50,000

£50,000

£50,000

Cumulative

£50,000

£100,000

£150,000

£50,000

£100,000

 

However, applying for retrospective duty-relief (such as Inward Processing Relief (IPR)) is difficult and requires additional and more stringent criteria to be satisfied. Furthermore, retrospection is this case only goes back one year unlike three years in the example above.

Is Customs Planning on your Radar?

There are two major reasons why Customs Planning falls off the tax radar. Firstly, businesses may not have the capacity to instigate and operate customs planning especially as many were forced to streamline and reduce staff numbers during the recession. Secondly, many businesses are simply not aware of their customs obligations as the customs function is delegated and abdicated to freight forwarders and customs agents.

Engaging expert consultants will result in the correct questions being asked at the correct time and instead of procrastination and confusion, it will lead to exact pin-pointing and certainty and an almost certain reduction in the time it will take to identify and remedy any errors.

How can ITS help with Customs Planning?

International Trade Solutions focuses exclusively on Customs Law and Practice. Our knowledge and experience means that we can efficiently and specifically pinpoint the areas where compliance issues can arise. We offer solutions and advice about how to construct processes or remodel them to ensure maximum compliance as well as submitting claims efficiently and robustly. We offer “hands-on” implementation to enable you to focus on other areas that may need your attention and we offer a quick return on investment (typically 400%). If you would be interested to discuss how Customs Planning may benefit your business we offer a free first consultation where we will answer any questions that you may have and will explain the options open to you. Customs Planning is all about putting you back in control so contact us on (01905) 619229 to arrange a meeting. Alternatively you can drop us an email at: mail@internationaltradesolutions.co.uk or visit our website to learn more about us or download our free White Papers about various areas of customs law.

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