60 Second Guide to Customs Compliance & Risk Management

27 January 2012

What Every Finance Executive Needs to Know About Customs Compliance

Customs risk can be understood in the context of likelihood of something going wrong and the impact of any errors or mistakes.

Likelihood

Customs compliance is subject to audit based control and so the fact that goods have been cleared through customs is no indication that you have met your compliance obligations. Customs transactions are open for three years.

Statistics from the National Audit Office show that only 2-3% of imports are inspected, that 6% of importers are subject to audits each years and that 39% of these visits result in identification of compliance errors.

HM Revenue & Customs has in the past sought to ensure most material importers and higher risk importers are subject to audit once every three years. However, resource constraints have put pressure on these targets. The gradual roll-out of Authorised Economic Operator (AEO) status may help them get audits back on track, with focus on non-authorised traders perceived to be of higher risk.

Impact

Non-compliance errors can snowball to significant exposures because HM Revenue & Customs will go back three years and:

• Assess for any underpaid customs duties
• Raise penalties of up to £2,500 per import
• Remove any duty relief regimes or deny applications for trade facilitative measures
• Contact overseas customs authorities to alert them of potential errors, putting export customers at risk of additional duty demands and penalties
• Delay future imports as they are subject to additional enquiries
Companies with turnovers in excess of £200m could also be subject to challenges under Senior Accounting Officer (SAO) provisions, with personal penalties on the Finance Director.

Common Compliance Mistakes

The most common compliance errors leading to compliance risk include:

• The use of incorrect customs classifications (also known as commodity codes)
• Incorrect claims for preferential treatment under Trade Agreements or lack of supporting evidence
• Incorrect currency entered on the customs declaration
• Failure to add all the necessary items to the price of the goods when calculating the customs value (freight, insurance, certain royalties etc.)
• Use of a transfer price without necessary adjustments or without taking in to account the risk of periodic adjustments
• Use of a duty relief without proper authorisation
• Use of a duty relief without meeting all the necessary qualifying conditions or having supporting evidence
HM Revenue & Customs Audit Officers come armed with check-lists and spreadsheets showing all imports declared. They will ask businesses to produce certain documentation relating to selected imports. Any failure to promptly produce this documentation indicates a potential breach of rules on record keeping which can result in penalty action but also systemic weaknesses and further investigation.

Risk Management

Compliance risks can be minimised by:

• Requiring the supplier to act as importer and take on the customs risks (if they are willing or able to do so)
• Implementation of robust and transparent customs compliance procedures and management checks
• Developing better working relationships with freight forwarders to they have all the necessary information to make the legal declarations on your behalf
• Subscribing to the data HMRC uses to carry out its audits (known as MSS) so you have greater visibility of what is declared in your name
• Obtaining written decisions or legal rulings whenever your customs position is not clear to limit the risk of subsequent challenge
• Regular reviews by external customs consultants. We bring a fresh pair of eyes, deep knowledge of customs law and practice and experience of what can go wrong as well as best practice
Please call us on 01905 619229 or email rob@internationaltradesolutions.co.uk if you have any queries on this or would like to discuss arranging a review.

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