Are you one of the thousands of UK importers who aren’t aware of this? Are you in finance, logistics or one of the directors? If so, read on - this article is well worth a few minutes of your time.
As
an importer, whether you import by ocean freight from China, air freight from
the USA or use DHL Express / UPS for your small parcel shipments from Japan,
you should know that you have legal responsibilities to HMRC / HM Customs under
the Customs & Excise Management Act 1979.
So
why should you be concerned? You actually leave all that work to your
freight forwarder / logistics provider / Customs broker, they charge you for
their services and you take delivery of the shipments. You certainly don’t make
any Customs declarations to HMRC so surely, if anyone makes a mistake, it’s
certainly not your responsibility – right?
Actually,
no.
When
you use a freight forwarder, logistics provider or Customs clearance agent or
Customs broker to carry out the Customs clearance for you, 99 % of the time,
they’re acting as your Direct Representative, even if they haven’t always
formalised that arrangement with you. So what does that mean? It means that
although they declare the goods to Customs for Customs Clearance purposes and
sign the Customs Entry / C88 (albeit electronically), they’re doing it on your
behalf and you're actually liable for any mistakes or incorrect declarations on that entry.
All
this might come as a surprise to you but it’s most definitely in your interest,
from a legal, risk, commercial and financial perspective to find out exactly
how this process is being managed right now as it raises some fundamental
questions as below:-
1
– How are all the different products we import being classified for Customs
purposes and who actually classified them?
2
– What duty rates are we paying and are they correct?
3
– Are we paying too much duty, in which case money is being wasted?
4
– Are we paying too little duty, in which case we leave the company exposed to
fines and time-consuming Customs investigations?
5
– Are the correct values being declared to Customs?
6
– Are we as the importer keeping full and accurate records as required?
7
– As the importer, can we demonstrate to Customs that we have a robust Customs
Compliance process?
8
– If we had a Customs inspection, would we be able to prepare for it and would
Customs find us to be compliant?
If
you read these questions and then start to feel uncomfortable, then you’re
probably not alone – in our experience, very few importers take Customs
Compliance seriously, mainly because with so many companies these days, they
don’t have a dedicated department for logistics or shipping and the
responsibility for logistics falls across several departments, so no one
manages this area at all - and that is a real concern.
If
they ever do get a visit from their local Customs officer, they often find it
to be a very unpleasant experience, as Customs will expect them to have kept
detailed records of their import consignments and they’ll also take great
interest in the Customs commodity codes, duty rates and the Customs Procedure
Codes being used by their Customs agent.
If
they discover any errors, you can be assured that they will start digging and
if there are any errors in your declarations, compliance processes or procedures,
they will most likely find them. This process is very unpleasant and worrying
for importers as Customs can be relentless in their search of lost revenues
connected to underpaid Customs duty and VAT, can levy fines and insist that
underpaid duties going back 6 years are repaid. This can not only cause a lot
of disruption to your business, it can mean you are presented with a large bill
(and possibly a fine).
As
an example, a healthcare company in Warrington we visited were importing from
Asia and had been using an incorrect commodity code for many years. HMRC
visited, then did the analysis of all the affected Customs entries and
presented them with a bill for £ 45,000 which they consulted us upon. Although
we tried to help, we told them that unfortunately, HMRC were correct and we
couldn’t find any Customs rulings in the UK or EC to justify their use of that
commodity code. They struggled to pay this huge figure and I think they
wish they had taken their Customs responsibilities seriously years earlier.
So
how do you fix this? In our opinion, it’s all about doing some basic research,
finding out how everything works today, ensuring any grey areas are dealt with
and then putting in place robust procedures. After that, just as
importantly, carrying out compliance checks each month to ensure that the
commodity codes and Customs procedures are being followed (and correcting any
errors quickly). This way, when Customs do visit, you can demonstrate a really
solid process and even if they don’t, you have complete peace of mind that you
are paying the right amount of duty and you’re able to respond with confidence
should a Customs visit or inspection raise its head.
Some
of the main things you should be checking if you decide to carry this out
yourself are:-
1 - Correct tariff classification (which affects the duty rate payable)
1 - Correct tariff classification (which affects the duty rate payable)
2
- Value declaration (is the value on suppliers invoice correct)
3
- Correct currency code
4
- Declaration of marine insurance (dutiable)
5-
Declaration of correct freight charges (dutiable)
6
- Correct/appropriate Customs regime (home use/IPR/OPR)
7
- Application of any duty concession which may be applicable
(There
are over 54 fields on a Customs C88 but these are the main ones).
HMRC
have issued guidance to remind customers of their responsibilities in this area
which are “IT 03 – What International Trade Records Should I Keep” and “IT04 –
Recommended Management Checks For Importers”
however they're not well-publicised and the wording inside may be confusing to the average UK importer (who has most likely never completed a Customs entry in their life!).
however they're not well-publicised and the wording inside may be confusing to the average UK importer (who has most likely never completed a Customs entry in their life!).
We
carry out Customs Compliance work for almost all of our import customers so
they know they're compliant, they're paying the right amount of duty, the
correct tariff codes are being applied for the different products they import
and they're taking advantage of any Customs duty reliefs which are available.
The other big benefit is the obvious one - peace of mind, it's being managed,
and if they get a Customs visit, we can show they carry out a solid compliance
process to ensure any errors are picked up and corrected.
This
was how we uncovered a £ 26,000 duty overpayment for a Warrington customer in
2012 who import from the USA. The mistake involved over 127 Customs entries and
took several months but we succeeded and they not only appreciated the large
refund, they now also enjoy duty rates 25% lower on all their current shipments
which helps them be more competitive, all with HMRCs blessing!. We’d already
reviewed their import air freight and ocean freight in 2011 and made
significant impacts on their landed cost and transit times and we continue to
manage their international logistics to this day.
As
you will see from our website, Customs compliance is just one of the core
services we provide to customers alongside our Freight Reviews, Freight
Management and Consultancy.
Please
follow me on Twitter @AndyCliffSCL, visit our website www.straightforwardconsultancy.co.uk and our
blog http://straightforwardconsultancy.blogspot.co.uk/
Andy
Cliff is an industry professional who launched his own logistics consultancy,
Straightforward Consultancy Ltd (SCL) after a 30 year career in international
logistics, working for companies such as DB Schenker, Kuehne & Nagel and
DHL Global Forwarding in operational, sales and management roles.
Andy
felt that in an increasingly complex and confusing world of logistics, small-medium
sized UK importers and exporters needed a company alongside them which could
help them to reduce costs, lessen their workload and provide expert advice and
support day-to-day. In 2015, SCL celebrated its 5th birthday after a record
year in 2014. Andy also became part of the judging panel for the 2015
Global Freight Awards, which recognise quality, innovation and performance in
the field of international logistics.
