A Spotlight on: Reasons for a Customs Audit
Strong & Herd LLP
Supporting international business! We provide practical training in the areas of export, import and customs procedures.
International Traders must consider their responsibilities to HMRC and aim for 100% Customs Compliance. The EORI will identify the trader to HMRC and Indirect or Direct Representation will establish the level of responsibility for the trader.??
Under Direct Representation, the trader is solely responsible for record keeping, the accuracy of any information provided on the customs declaration and any Customs Duty, and/or import VAT that is due.??
This focuses the mind to provide clarity on the fact that all the components of the Customs Declaration must be compliant. Any information declared could be subject to audit by HMRC.??
VAT Most exports and imports occur because a sale or a purchase has?been made. With a sale, the consideration of VAT follows. If the goods are subject to VAT, it would be charged for a domestic sale. Should VAT be charged for Exports? The seller would need to be able to demonstrate to HMRC that they have sufficient evidence to support the fact that VAT has not been charged. This is imperative for the seller, if they wish to avoid ‘non-compliance’ and the possibility of HMRC charging for the VAT and issuing a fine.??
INCOTERMS? The EXW Incoterm should be approached with caution by any seller wanting to undertake the minimum amount of responsibility. EXW is not always the ideal choice that it appears to be. The seller may be unaware of what is happening when the goods move, versus the stipulations of the rule.?
COMMODITY CODE Commodity Codes take us into the world of Tariff Classification. The trader must classify their goods against the UK Trade Tariff to ascertain the eight-digit Export Code and a minimum of ten digits at Import. The Commodity Code appropriate to the product will allow the exporter or importer to check the requirements, or controls that could apply. The other consideration is the rate of duty and VAT applicable at import. An incorrectly declared tariff code could mean the payment of too much or insufficient funds paid to HMRC. As a seller, our customer could ask for the commercial invoice to include their requested code. This would make the buyer happy, however, presents a ‘non-compliance’ for the trader.??
VALUATION Compliance relates duty to the valuation of goods. If the valuation?is non-compliant, this will affect the amount of duty and VAT payable to HMRC. Customs can focus on valuation and tariff classification of goods at audit. Although most goods do not attract export duty, the value that the seller declares must be correct, because it is likely to be used as the basis for the import value. Providing samples, often as ‘Free of Charge’ goods, should be compliantly valued at export.??
The value for the importer into the UK has not changed since Brexit. The CHIEF or CDS declaration requires the CIF Value. The Cost of Goods, based on the Valuation Method. Insurance and Freight, irrelevant of who pays these costs. Incoterms will decide who has the responsibility for the payment of the Freight, but only two of the rules stipulate Insurance. If any of the three valuation components are incorrect, this will impact on the Duty and VAT charges. HMRC could require documentary proof to support the declared valuation. The questions on valuation will increase as we fully move to CDS for our Import Declarations, potentially prompting further discussions at audit.??
PROCEDURE AND ADDITIONAL PROCEDURE The Customs Procedure Code (or the Procedure and Additional Procedure for CDS) tells HMRC why the trader is exporting or importing the goods. There are a wide range of codes that could apply, dependent on the business activities. Not every transaction may be standard. Inward and Outward Processing, Customs Warehousing and Temporary Admission all provide a benefit, but they also increase the level of responsibility for the trader, in terms of an application to obtain HMRC approval and the ongoing use, which could encompass reporting requirements and additional responsibilities.?
The CPC (or their CDS re-name) is likely to be of particular focus at an HMRC Audit. The potential focus could be a piece of detail that seems out of the ordinary. Potentially, if the same codes are appearing on a high percentage of the trader’s declarations - with certain exceptions, it will be likely that these different entries will have a greater focus.??
Information that is not usual can also apply to Commodity Codes. If the trader has a range of usual codes and there is a product declared that does not fit in that list, it could raise questions.?
LICENCES In the world of Strategic Goods, we require a licence from the Export Control Joint Unit. This takes us into the supply, or shipment, of Military or Dual Use goods. The exporter may not own the goods, but they have the responsibility to obtain the licence. It is a Criminal Offence to not declare a Strategic Goods Export Licence and a C81 cannot resolve this issue. These types of products combine compliance with the ECJU and HMRC. Export Controls will be audited by the former, but a disclosure of ‘non-compliance’ must be made to the latter.?????????????????????????????????????????????
Other product ranges also require a licence, which takes us to an ‘It depends’ for the requirements to export or import products to and from the UK. This, in turn could affect the documents that HMRC will expect the trader to hold at import.??
EORI NUMBER The MSS (Management Support System) will be helpful to the trader who has subscribed to the monthly report from HMRC, which lists uses of their EORI in the month the information relates to.??
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The EORI is unique and the trader must be aware of when it has been used. The trader may have good records and have retained the required documentation for their international trades.??
The MSS report will capture the possibility of EORI misuse, to allow the trader to approach the declarant who has incorrectly used it.??
International trade evolves and changes with the transition from CHIEF to CDS, the message of the importance of customs compliance for the exporter and importer remains the same.???????
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FULL LIST OF TRAINING DATES UNTIL DECEMBER 2023
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