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Inward Processing: How A Fairly Common Customs Error Caused Them To Be Taxed Millions

A recent tribunal decision indicates that even minor inaccuracies or discrepancies in the information submitted to HMRC by the importer and their customs agent could invalidate a customs duty relief for an entire period, resulting in a much larger bill than the importer might expect for a seemingly minor compliance failure. We break it down in detail and provide key tips on what you can do to deal with your customs authorizations compliantly.

Good flow from EU to UK after Brexit

Since the UK's departure from the EU Internal Market and the EU Customs Union, extensive customs declarations need to be completed before goods may cross the border from the European Union to the United Kingdom. As a consequence, many EU and UK businesses involved in international trade employed us as their customs agents / or brokers to ensure the effective flow of their commodities across borders and the management of associated paperwork.

What was the case about?

According to a recent tribunal ruling, even a seemingly minor compliance failure, such as a mistake or inconsistency in the information submitted to HMRC by the importer and their customs agent, may render a customs tax remission illegal for the whole period. The appeal concerns an aircraft component manufacturer that habitually imported aluminum and other goods into the United Kingdom and resold them to consumers.

Lucrative Special Customs Procedure...but with a catch!

HMRC permits importers to avoid paying customs tax and import VAT on certain products that have undergone a special customs procedure, called inward processing (IP). IP is usually subject to authorization by HMRC and requires a great understanding of how the cost-saving scheme works and how it is managed within a company. In particular, there are compliance requirements to be met - companies need to verify that the items were disposed of correctly after processing. In this case, the requirements for duty exemption - the granting of the authorization - had been met - the company was allowed to use IP.

How uses IP in the UK?

Common IP-using industries that require rapid action include aircraft, automobiles, food processing, industrial equipment, chemicals, technology, fashion, and repair and refurbishment.

Meet the BOD

Importers utilizing IP are required to maintain records and submit a "bill of discharge" (BOD) to HMRC monthly or quarterly, with the BOD occasionally accompanied by an Excel spreadsheet to facilitate reporting on the BOD indicating each consignment of goods disposed of within the IP time restrictions.

Are you auditing your IP compliance? If not, HMRC may do it

The UK's inland revenue service - HMRC - audited the company's IP records for nine months in 2014 and raised red flags when it discovered discrepancies between the data on the company's bills of discharge and the data in the Management Support System (MSS), a summary of customs agents' entries to HMRC's import entry processing system. Additionally, it was determined that the business's customs agent had made mistakes while completing the entry declarations, although the company had not made any mistakes on the BODs.

"I cannot match your BOD with what you have declared"

The First-Tier Tribunal upheld the corporation's claim that HMRC was unable to match the BODs provided by the company with the MSS data in its possession. Therefore, not only the items in the wrong shipments, but all the commodities in those BODs had failed to fulfill IP criteria. This led to a claim from HMRC for £2.4 million in customs tax and £6.4 million in import VAT, which the corporation would have been responsible for as IP exemption had been granted for the whole nine-month period in question.

One Single Mistake: It is YOUR fault and YOU pay!

In general, regardless of who caused the mistake, the importer is legally responsible for any errors or omissions in import entries (the importer or the customs agency). This is common information, but the present tribunal decision has far-reaching repercussions for IP importers in the United Kingdom. Might a single inaccuracy on the customs entry made when the goods arrive or the bill of discharge submitted when the products depart the United Kingdom be enough to invalidate IP for the entire term? If confirmed, certain importers may suffer millions of pounds in additional import duties and value-added tax.

What shall businesses do now?

This case demonstrates the need of double-checking all customs entry information provided by your customs broker. Good news, if we are your customs agent, an MSS compliance verification and regular customs compliance meetings are included in our service to our clients.

Top Tips

  • Obtain copies of the declaration from your customs broker upon importation.

  • HMRC charges for management support system (MSS) data.

  • Compare the veracity of these assertions against their documentation. Consequently, it is essential to double-check every data. The value, provenance, and commodity code of imported products are inadequate to ensure their legality.

  • Integrate the BOD entry information with the MSS data.

  • Contacting a customs broker as soon as possible after clearance is advisable in order to request any necessary modifications.

  • Submit mistakes directly to HMRC rather than waiting for the customs agent to remedy them.

  • You may utilize a data analytics tool to rapidly evaluate the many kinds of data sent to HMRC.

How we can help

With Customs Manager Ltd, you benefit from expert compliance and cost-saving consultancy and advice, and customs brokerage services. In other words, we advise on all aspects of Inward Processing (IP), from initial cost-benefit analysis to application with the authorities, setting up the management system, processes, and procedures to creating the BOD for you and submitting it to the authorities regularly. We run the whole program for you.

At the same time, we can file your customs declarations. This means we have the data and the knowledge on how to reconcile your IP BOD with the customs declarations. As your customs broker, what differentiates us from others is that customs experts with many years of customs experience will submit your declarations for you. We insist that you obtain MSS data, and we will - for no extra charge - analyse the MSS data for you and flag any compliance issues in a monthly report to you. We will also schedule compliance talks regularly to go through your data. It is efficient and effective filing, by experts + compliance assurance services all in one - for extra peace of mind.

So if you are planning to run a Special Customs Procedure and want our help, and could benefit from a helping hand, or you need customs filing support services, please schedule a free call with us today.


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