HMRC enquiries on customs duty compliance rise

Prior to Brexit, customs compliance requirements for trade within the EU were non-existent. It is therefore understandable that those traders who dealt with the UK on an intra-Community supply basis (the movement of goods between EU member states) find the post-Brexit situation challenging. 

There has been a recent surge in customs enquiries by HMRC, which not only highlights HMRC’s increased focus on customs compliance post-Brexit, but also reveals a significant customs skills gap and lack of awareness within industry. In addition, some practitioners, maybe cynically, suggest that this could present an opportunity to drive their own revenue.

Whatever the root cause, it has become apparent that even the most diligent businesses may be lacking the necessary skill set for customs compliance. Managing the customs compliance responsibility which includes relying on third parties, not only requires high-level management buy-in, but also significant input from in-house compliance experts. As a result, many businesses are struggling to make this transition, which is impacting their responses to HMRC’s customs enforcement letters. 

While some businesses are becoming proactive in assessing their customs compliance position, others have yet to grasp the evolving customs landscape and the potential risks of not complying with Senior Accounting Officer (SAO) legislation or becoming ‘not low risk’ in a Business Risk Review (BRR). 

This is often because customs compliance is typically subsumed under the logistics, supply chain, regulatory, or tax functions, depending on the organisation’s size and structure. However, professionals in these areas usually have little to no expertise in customs duty compliance and have had no reason to develop such expertise in the past. This is unsurprising, as customs expertise was traditionally seen as necessary only for HMRC, with few institutions offering specialisations in customs. Historically, most customs experts were once HMRC officers.

One can assume from the nature of HMRC's enquiries, that they are not merely enforcing customs formalities. The aim is to help organisations understand the level of their customs staff expertise, approach to customs classification, valuation, preference claims, and broker management. These are designed to gauge an organisation’s customs compliance culture by revealing its investment in customs compliance, determining risk levels, and assessing the need for further review. It goes without saying that where HMRC’s analysis reveals non-compliance, this may result in significant financial consequences.

Therefore, businesses must recognise that customs duty can no longer be treated as the forgotten tax and that customs compliance deserves serious attention to avoid exposure to financial risks in the future. Whether or not you have received an enquiry letter from HMRC regarding customs compliance, a proactive step would be to assess your customs risk today and seek assistance if necessary.