Preparing for a customs compliance audit
Customs compliance audits take place following imports and can cover up to three years of historical import activity. Following Brexit, HMRC applied a light touch to their audit program, but we are now seeing increasing customs audit activity as UK businesses and HMRC evolve in a post-Brexit environment.
In a typical customs audit, an importer must be able to demonstrate compliance with the customs regulations governed by UK law and non-compliance can yield penalties, withdrawal of customs authorisations and duty demands.
The nature of customs audits vary – HMRC may conduct a general investigation into customs operations or show an interest in auditing the activities for a particular area of compliance.
We are seeing an increase in HMRC targeting of SMEs for post import customs audits, possibly because revenue generated from customs duty in the last year fell from £5.8 billion to £4.5 billion, combined with the UK government pressure to increase revenue.
Current hot topics include lack of evidence to support claims for preferential origin, incorrect commodity codes and underdeclared values on related party transactions.
Common areas which are explored during a customs audit
1. Responsibility and internal expertise/competence
At the start of a customs audit, HMRC will seek to establish who is responsible for customs compliance, and the level of internal customs expertise in the business.
2. Customs broker management and representation
Expect to be asked for up to date copies of letters of authority, clearly stating the terms of representation, as well as clearance instructions for specific declarations.
3. Ongoing monitoring procedure
HMRC’s auditor will expect to see that the business checks the accuracy of declarations made and has procedures in place to identify and address any errors.
4. Tariff classification procedures
The business’ process for determining accurate commodity codes will be examined – ensure this is documented, regularly reviewed and actively embedded in relevant job functions.
5. Customs valuation of goods
Ensure that the correct customs valuation method is used in alignment with the relevant incoterms®, and that necessary additions or deductions have been correctly applied. Expect scrutiny of intercompany transactions for compliance with customs valuation requirements.
6. Evidence of origin
Where preferential origin has been claimed at import, HMRC will expect you to hold adequate evidence of origin and may also expect you to demonstrate your levels of due diligence on suppliers to validate that the goods fulfil the relevant rules of origin.
7. Special procedures, reliefs and authorisations
Where imports have been declared to a special procedure, compliance with the terms and conditions of your authorisation will be examined.
8. Customs documentation, record keeping and audit trails
Any documentation relating to an import declaration should be available, or easily retrievable. This could include everything from generation of an order, through to details of payment for the goods.
9. Duty management
Checking of deferment statements and PIVA statements should be undertaken regularly as part of monitoring broker performance, but also to help identify whether your details may be being used for another party’s imports. A record of the checks made should be available at the audit.
10. Duty demand
A consequence of many customs audits is a demand for underpaid duty. There are strict time limits for payment and for appealing any demands. In many cases, demands are incorrect and can be challenged, so we recommend seeking professional advice as soon as any demand is received.
It is important to note that HMRC audits are not random or routine – they are targeted at importers where HMRC already believe they will uncover evidence of incorrect declarations.
HMRC select importers by analysing the data taken directly from declarations made by, or on behalf of the importer. That very same data is available to importers, enabling early detection of errors and swift remedial action before it becomes the subject of an intrusive customs audit.
When HMRC initiate a customs audit, it can be a good trigger to call Crowe’s customs team to help prepare. We can assist the business by using our Customs-ID software to analyse import data and by conducting a “mock” audit which can help familiarise the business with the audit process and highlight any key risk areas and suggested improvements.
We are committed to ensuring that the business feels prepared for the audit and that a positive outcome is reached.
For more information, please speak with Ian Worth, or your usual Crowe contact.
