Appropriate Customs Processes and Systems

08 June 2012

New Guidance from HMRC

Many companies struggle in coming up for a vision of what appropriate customs processed and systems should look like.

Given customs duty compliance is subject to audit based control, these processes and systems will be under scrutiny by the tax authorities at some point. Useful guidance on this matter was issued as part of the updated Senior Accounting Officer (SAO) Guidance Manual to HMRC staff in April 2012.

Meeting these requirements is a legal obligation for large companies (turn over £200m plus) and failure can lead to personal liability for the nominated SAO. Adopting these requirements will help all businesses control compliance risks and utilise appropriate elections to ensure duty is not overpaid.

General Guidance Points

The guidance provides companies should:

1. Ensure compliance with legal requirements
2. Carrying out periodical checks of systems, controls, process flows and transactions
3. Supporting the introduction of new systems or processes or changes to them through appropriate planning, risk assessment, implementation and evaluation
4. Maintenance and retention of required records
5. Appropriate staff training
6. Checking third parties to whom responsibilities are delegated are appropriately trained, have necessary guidance, qualifications, knowledge and experience to carry out their function
7. Gather all relevant facts and advice to allow the company to make customs sensitive judgements (e.g. using duty relief regimes, valuation planning etc.)

Many taxpayers will find the first point difficult to meet. The legal requirements are set out in EU law (primarily EC Council Regulation 2913/92 and EC Commission Regulation 2454/93), national law (primarily in Customs & Excise Management Act 1979) and individual trade agreements. Unlike other areas of tax, customs law is not picked up during any professional training and is not readily accessible.

Delegating Customs Declarations to Forwarders

Using third parties (freight forwarders) to make customs declarations is common practice for most companies. Forwarders almost always work as direct representatives whereby the tax payer is solely liable for the accuracy of the customs declarations and any debts.

Great care should be taken in establishing and maintaining the relationship with these agents. Employing an agent that holds Authorised Economic Operator (AEO) status may give some comfort that they have the appropriate qualifications, knowledge and experience as they have been subjected to HMRC scrutiny and accepted as a reliable party.

The SAO guidance does not expect the taxpayer to carry out detailed checking of third parties work but does require proper assessment of their competence and controls.

Taxpayer Establishing & Maintaining Customs Data

Whether the taxpayer uses a third party to make customs declarations or not, they must still provide the forwarder with the necessary standing and transactional data to make customs declarations.

There are 56 data fields on a customs import or export declaration which must be validated and maintained. An error in some of these data fields can lead to a substantial underpayment or overpayment of customs duty.

Exercising reasonable control of these transactions and data can involve a wide range of people throughout the various functions of the business.

The guidance states that the SAO steps involve:

• Obtaining assurance about the validation process for all data items to confirm that they are declared correctly, completely and in accordance with the law, as well as of the maintenance processes for the data via regular review of standing data
• Clearly documented and tested security and access levels allowing staff or third party personnel to generate or change data
• Ensuring that staff are appropriately trained for their role or that third parties are appropriately qualified and experienced to undertake any activities
• Obtaining assurance about the process for classifying goods for Customs purposes and maintaining correct classification of products according to current Tariff information
• Documented procedures for the classification of goods for import and export purposes, Valuation of

Goods for Customs Purposes, etc.

The SAO guidance manual sets out a similar vision or expectation of customs systems and procedures as required by certain customs specific regimes including Customs Freight Simplified Procedures (CFSP), Authorised Economic Operator (AEO).

Customs Planning & Relief

The customs regulations provide various options for reducing or deferring customs duty costs. Many of these options require prior approval and the taxpayer taking on additional obligations.

The taxpayer should note points (3) and (7) of the general guidelines above when using any customs planning. This may increase implementation and maintenance costs but should result in more robust compliance which reduces the risks of retrospective challenge and loss of benefits.

Next Actions

The above guidance sets out a blueprint that must be adopted by large companies if their SAO are to avoid personal liabilities or needing to make disclosures on their SAO certificates.

They also provide a clear blueprint for companies serious about managing their regulatory responsibilities and controlling customs risks.

ITS works with a number of clients to establish and maintain systems and processes that meet the guidance notes. Our models and tools can help speed up implementation while minimising disruption to the tax payers business.

If you are interested in exploring this matter in more detail then call Rob Jenkins on 01905 619229 or e-mail rob@internationaltradesolutions.co.uk to arrange a meeting.

 

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