Brexit has increased the customs exposure of many businesses. Brian McNamara explores four common misconceptions and what companies can do to mitigate associated risks
In the two years since Brexit, the customs exposure of many businesses has increased significantly.
There is still confusion over the exact requirements and obligations of a company trading in a customs environment. This lack of understanding of the rules can increase the risk of non-compliance.
Here are four common customs misconceptions and what steps should be taken by organisations and their Chief Finance Officers to mitigate customs risk.
1. Outsourcing declaration filing to a third party reduces an importer's customs obligations
Most traders outsource the filing of their customs declarations to a freight company or clearance agent. Despite this, it is essential to remember that the importer remains completely liable for the accuracy of the customs declarations filed in their names. Any errors or omissions contained in the declarations are the trader's responsibility, as are fines and penalties that might be incurred.
While it is perfectly reasonable for a company to outsource the filing of their customs declarations, the importer must take ownership of the customs declarations filed in their name. "Our freight company takes care of them" is not a valid response. Finance departments need to ensure the accuracy of their customs data, and regular spot checks should be carried out on declarations filed.
2. Customs risk ends at the port
Just because a shipment passes through the port does not necessarily mean the customs data in the declaration filed is correct. The right combination of characters entered in the import system will get a shipment green routed. Customs only check a small percentage of the shipments coming in, but the importer must file an accurate customs declaration.
A trader must also retain copies of all backup customs documents for four years after the date of import. So far, Revenue has been relatively lenient in auditing companies with an increased level of customs exposure; however, this is likely to change soon. Import duties are an EU tax, and Revenue must ensure compliance.
Businesses trading in a customs environment need to be customs audit ready. Finance departments should get a clear picture of which outside agents file declarations on their behalf and how they can access copies of their customs declarations.
3. Goods being sent for repair are not subject to import duty
Once goods cross a customs frontier, import duty is payable on the value of those goods, even if the movement does not relate to a buy/sell arrangement, such as goods going to the UK for repair. In the absence of a trader using a customs special procedure, such as outward processing (OP), EU import duty is due on the full value of goods coming back from the UK following repair.
To remain customs-compliant, the full value of goods for repair should be shown on the invoice or packing list (not the cost of repair or some reduced valuation). Businesses should use OP to gain relief from import duties on returning repairs. Customs authorities recognise that sometimes goods need to cross borders for repair—inward processing (IP) and OP are in place to allow businesses to gain relief from import duties on such movements.
Businesses should apply for a full OP authorisation with a regular volume of non-EU repair activity, or 'simplified' OP can be used to gain relief if the repair activity of a trader is only occasional.
4. There is no customs risk for exporting companies
It is true that customs risk for importers is higher than for exporters. However, exporters are still responsible for the accuracy of declarations filed in their names. Customs risk increases for export companies providing Statements on Origin (SoO) on their invoices. An Irish exporter may provide an SoO to allow a UK customer to claim preferential import duty rates on EU-origin goods.
By providing an SoO, the customs risk shifts from the UK importer to the Irish exporter. Therefore, careful consideration should be given before issuing one. When providing an SoO, an exporter should have confidence that their EU-origin goods comply with all customs rules of origin and have the documentation to prove it. Further, this documentation should be retained for a period of four years to facilitate an inspection by Revenue.
With a myriad of fines, penalties and the payment of back duties on offer, non-compliance can be costly for a business. Managing a customs audit can be challenging if a company is not adequately prepared. CFOs should get familiar with their customs obligations now to minimise the likelihood of compliance issues in the future.
Brian McNamara FCA is Managing Director of SwiftFile Customs Clearance & Advisory