As companies continue to grapple with customs requirements in the aftermath of Brexit, Brian McNamara outlines the steps CFOs can take to ensure their company remains customs compliant.
The last six months have seen a fundamental shift in the trading environment for Irish businesses dealing with the UK. On a macro level, we have thankfully avoided any significant disruption to supply chains. But at a company-specific level, many CFOs are struggling with hastily put together customs solutions and supply chain workarounds.
Much of the focus since 1 January has been on keeping goods moving and minimising duty. While this is understandable, the re-introduction of customs on trade between Ireland and Great Britain has significantly increased the level of compliance risk for many businesses. CFOs need to get comfortable with the requirement for accurate company customs data and complete documentation.
The challenge of staying customs compliant
Crucially, the responsibility for customs compliance falls solely on the trader. While you may outsource the filing of customs declarations to a third party, your company is 100% liable for the accuracy of the declarations. Inaccurate declarations can result in interest and penalties. Several factors have emerged over the past six months, which have made it more challenging for businesses to stay compliant:
- A lack of knowledge on customs matters in the business, increasing the likelihood of errors;
- Multiple agents filing declarations on behalf of a company, making it harder to get a clear view of the numbers;
- Under-capacity and a lack of experience within freight companies filing customs declarations, increasing the risk of inaccurate declarations; and
- Insufficient information in customs reports from the Revenue Commissioners, making it very difficult to account for Postponed Import VAT accurately.
It should be remembered that getting a Green Routing on a customs declaration does not necessarily mean it is correct. Data errors and under-declarations can be repeated without being picked up in a customs audit for months or even years. With back duties, fines and penalties, customs errors could present a severe problem for a business.
Measures you can take to minimise the compliance risk in your business
- Raise awareness across the business of the importance of being customs compliant: ensure that colleagues outside the finance department are fully aware of the potential cost of compliance issues. Given the implications of non-compliance, customs declarations should be treated with the same level of respect as other tax returns.
- Take ownership of your customs declarations: have complete visibility of the customs declarations being filed in your company’s name; request details of company declarations from whoever is filing them and carry out regular spot checks for accuracy.
- Do not claim preferential rates unless you have the proper documents to prove you are entitled to them: the EU/UK Trade Agreement allows for duty-free access on certain goods moving between the parties. However, it should be remembered that preferential import duty rates are not an automatic entitlement and can only be claimed on UK origin products. If in doubt, don’t claim. Claims for preferential duty rates can always be made retrospectively.
- Ensure that you properly account for import VAT: postponed Accounting for Import VAT can provide a significant cash-flow benefit for importers, but the Revenue Commissioners can exclude a company from availing of it if they are not accounting for it correctly. All import VAT postponed in a period must be accounted for in a company’s VAT return for that period.
- Don’t delay: if you have concerns about your customs exposure, don’t wait to address them. The longer errors or under-declarations of duties persist, the bigger the potential problem.
While the past six months have been a steep learning curve for many businesses, it isn’t too late to get on top of trading in a customs environment. Aligning all departments with an improved customs compliance approach will also significantly improve the chances of your business remaining customs compliant.
Brian McNamara FCA is Managing Director of SwiftFile, a full-service customs clearance business.
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