Five Customs Duty pitfalls of post-Brexit trading

06 April 2021

Although much of the press interest in Brexit has ebbed away, businesses in the front line dealing with the new import and export rules know that their struggles are very much a live issue. In this article we highlight five key pitfalls that businesses should identify and avoid to keep trading profitably.

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.

This trend has been exacerbated by Brexit which put so much pressure on freight forwarders to submit declarations for EU imports that some are cutting corners - eg submitting simplified declarations instead of full declarations etc. In the future, HMRC’s focus will return to accurate compliance and all these issues will come to light.

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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Not understanding how your Incoterms 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 make 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 delays and difficulties that cause poor commercial relations with customers/suppliers – ultimately, this will erode profit margins.

How BDO can help

We can help you map out your key supply chains and overlay the Incoterms that you are using to identify the impact of these in terms of additional administration and likely costs. Then we can review your options to see if more advantageous arrangements can be implemented.

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Understanding the rules for duty-free movement of goods between EU and UK

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 show 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 classification (nature) of the goods and the relevant agreement (not all agreements are the same). The rules on reaching, and evidencing, preferential rules of origin can be complex to apply. For example, in some instances the supplier not only has to test its own production process to see if this meets the rules of origin but also go back up its supply chain to understand the origin status of materials or ingredients that it obtains from suppliers and uses in the production of its goods.

For many companies this is a new requirement and it is difficult to understand what processes and controls need to be put in place to administer this area compliantly.

How BDO can help

We 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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Finding reliable customs support and advice for ad hoc queries

Many elements of the way we now trade with the EU are new to many companies and, on a daily basis, they come across new scenarios and problems. But they find dealing with HMRC frustrating, time consuming and slow. This can have a knock-on effect on operations and deliveries building more pressure on the business.

How BDO can help

We can provide a helpline service for clients through which we undertake to answer ad-hoc queries in a practical, timely and responsive manner.

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Lack of relevant customs knowledge

Over the last six months UK companies have been bombarded with information from the Government about the legislative, reporting and administrative changes to trade and customs brought about by Brexit. Dealing with the impact of the COVID-19 pandemic and the resource restrictions it has often imposed has heaped even more pressure on businesses – it is hardly surprising that many have struggled to identify, negotiate and take on board the new information that is relevant for its business and supply chain.

How BDO can help

We have developed customs training programs which we adapt to reflect individual company’s supply chains to get your team up to speed in a bespoke and cost-efficient way – SMEs may qualify for government funding towards the cost (see government funding sources below). The training can be done either face to face (via Teams) or with the full flexibility of our e-learning modules and integrated with your processes and operations to make it easy for your teams to apply to their day to day work.

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Government funding