Article:

10 common pitfalls with Customs declarations

17 May 2022

Since Brexit the Customs Duty rules and requirements on goods moving between the UK and EU have changed and failure to deal with complications can lead to costly delays and penalties. The reality is that failures can appear in various ways when importing and exporting goods and may only become apparent after months or years. It is vital that you ensure your controls and oversight are robust, especially when using freight forwarders and agents. Here’s our checklist of what you should be looking out for. 

Missing/invalid information

It may seem obvious, but if information is not provided on Customs Declarations they will be rejected, and movement of the goods slowed down. Similarly, Customs systems automatically validate data in arrange of ways for consistency to identify simple and transposition errors at the earliest stage. For example, missing invoice information on the agreed terms of delivery is one of the most frequent reasons for questions and delays.

Incorrect quantities

Similarly, declarations showing incorrect information are instantly rejected. This might be as simple as an incorrect description of the goods or the wrong number of goods in the shipment – either could arise where there are multiple or repeated shipments of stock items requiring repeated declarations.

Quality checking declarations either on a sampling basis or using appropriate software to compare them to the relevant invoice can help to identify these. For example, comparing the number of items against the declared weight of the goods can be a simple way to pick up discrepancies.

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Customs classification

If the goods are declared under the wrong Customs Classification (even if it makes no difference to the duty rate applied) the declaration will be rejected. If an incorrect code is used it will often lead to an incorrect payment of duty (Customs only do a very small number sample checks of goods against declared codes) – this can lead to overpayments or, worse still, underpayments that can, in turn, to penalties down the line.  

For businesses new to making Customs declarations getting the classification right can be difficult - so it is vital to make sure that the invoice shows a clear description of all the goods covered including the purpose for use, the materials and characteristics of all items. Even if you use freight forwarders to do the declarations, getting expert support to identify the right classifications of the goods you regularly move across borders will enable you to build up a database of common codes and goods to make quality checking easier. 

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Valuations

Although the standard method of determining the value of goods for Customs Duty purposes is obvious – the selling price of the goods, there can be complications when inclusive prices are used on invoices. This might include the delivery costs for the goods within the UK for importers – and it is not necessary to pay Customs Duty on such costs. There are five further methods (used in a specific order) that can be used to establish the Custom Duty value of the goods, so it can become a complex process – but if you get the valuation wrong, it can easily lead to an incorrect return that can give rise to substantial penalties – particularly where fraud is suspected.  

Misunderstanding the rules of origin

Both the EU-UK Trade Cooperation Agreement (TCA) and the UK’s other third country Free Trade Agreements (FTAs) provide the opportunity for duty-free movement of goods between the signatory territories. However, to qualify for the duty-free movement the goods must meet the relevant ‘rules of origin’ set out in these agreements.

The rules are designed to prove that the goods originate or have preferential origin in the territory from which they are exported to the other territory – but, there are different rules of origin depending upon the nature of the goods and it should be remembered that the rules in the TCA are not always the same as the rules under other Customs agreements.

It is possible for certificates of origin to be declared invalid after the import because the authorities doubt the correctness of the goods origin – this will usually give rise to penalties.

BDO can undertake an origin review of your products to establish if they meet the relevant rules of origin from both an imports and exports perspective. We can help you build the correct back-up evidence to meet HMRC’s requirements for EU customs declarations. We can also help you design and implement internal controls and procedures which will allow your business to monitor, review, update and control this area as your sourcing, customers and supply chains evolve over time.

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Incoterms - not understanding how they affect your supply chain

Many companies are still not fully aware of the specifics of incoterms and what the difference between the various terms mean for their business and supply chain. We commonly see businesses getting into difficulties by:

  • Not clearly understanding the difference between Delivery Duty Paid (DDP) and Delivery at Place (DAP) - under the former the seller is the importer in the customer’s country, under the latter it is the customer.
  • Not realising which incoterms are actually being used – for example, UK companies thinking they are buying on DDP terms, whereas in reality, to get around legal restrictions as to who can be an importer in the UK, DAP terms are being applied. This makes the UK buyer the official importer without ever having given consent or even realising this.
  • Entering into sales contracts with EU customers on DDP terms even though it is difficult for a UK company to act as an importer in the EU if it is not established there – causing problems from both a customs duty and VAT perspective.

Lack of understanding in this area can lead to incorrect declarations causing delays and difficulties that cause poor commercial relations with customers/suppliers.

Supply chain changes

When you change suppliers, this can have a significant impact on your Customs declarations for what seem to be essentially the same products or components. In reality, the contract terms will likely be different, the rules of original may be different and even the goods classification may be different (if different raw materials are involved) – all these could alter the Customs declarations that are needed. So you may need to start from first principles in preparing the declaration rather than copying the last form.

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Not checking up on your freight forwarders’ paperwork

Did you realise that even though you may have contracted out the customs declaration process to a third party when your goods are exported, legal liability for the accuracy of the complex customs data that the freight forwarder submits (as a direct representative) remains with your company?  In other words, your business is responsible to HMRC for errors made in its name by the freight forwarder.

In our experience, many companies either:

  • Do not always receive copies of the customs declarations from their freight forwarders
  • Or, if they do, do not carry out sufficiently detailed and accurate checks on a sufficiently large sample of customs declarations to identify errors and rectify these through post declaration amendments to HMRC.

Not only are companies storing up incidences of ‘non-compliance’ with UK customs legislation, often they do not realise the growing risk and only become aware when HMRC undertakes a customs audit on them. Read about our Customs declaration Assessment tool.

How BDO can help

We can provide cost-effective checking of your outsourced customs declarations. Using data analytics tools we will create a business profile for your transactions that can be used to check your declarations automatically and identify errors that can then be rectified. This will improve your compliance record and reduce the risk of errors being found by HMRC at a future customs audit.

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No technical back-up

Pressure to fulfil an order and meet delivery schedules often means that companies take a chance that their Customs Duty paperwork is right rather than taking the time to get expert advice. BDO can provide a helpline service for clients through which we undertake to answer ad-hoc queries in a practical, timely and responsive manner.

Lack of internal controls 

As with all tax documentation, if you don’t operate a review and control system for your customs declarations you may miss systematic errors that led to large Duty liabilities being built up over time.  

BDO can offer an external review of your Customs declaration data to identify potential risks and errors in your declarations to ensure that these can be corrected before Customs decide to visit your company to carry out a detailed audit – read more here.

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 Customs Brokerage service

We can take the complexity and risk out of the customs declaration process by completing and submitting your customs declarations for you either as a fully outsourced service provider or on an ad hoc basis.

What do we do

  • We will work with you to ensure that the correct customs data, e.g. commodity code, value, origin status will be entered into the customs declarations
  • Complete and submit your customs declarations to CHIEF
  • Ensure that copy C88s/E2s are provided to you within 24 hours of acceptance by HMRC
  • Resolve any issues directly with HMRC
  • Identify customs compliance risks and cost saving opportunities in your supply chains.

For bespoke support please contact Hakan Henningsson or Juliet Wallwork

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