How one small slip can land you with a huge customs duty bill

01 January 2023

One effect of the UK’s departure from the EU’s VAT and customs systems is to greatly increase the number of detailed customs declarations that must be completed when shipments of goods cross the UK border. As a result, many importers and exporters have needed to make more use of customs agents to keep their goods moving and help manage the paperwork. 

They will be concerned by a recent tribunal decision which now suggests that even small errors or disparities between the information submitted to HMRC by the importer and their customs agent could invalidate a customs duty relief for a whole period, resulting in a much larger bill than they might expect for a seemingly minor compliance failure.

The appeal concerned a company that regularly imported aluminium and other materials into the UK, which it processed into aircraft parts and then passed onto customers. The company was authorised by HMRC to benefit from inward processing (IP), which allows customs duty and import VAT to be waived on such imports provided the importer can satisfy HMRC that the goods have been correctly disposed of once the processing is complete. 

Importers using IP must submit a monthly or quarterly ‘bill of discharge’ (BOD) to HMRC, often accompanied by an Excel spreadsheet to simplify the reporting on the BOD showing each consignment of goods that has been disposed of with the time limits of IP, and retain documentary evidence to support this. This confirms they have fulfilled the requirements for this duty relief.   

HMRC inspected the company’s IP records and raised concerns that information on the company’s bills of discharge did not match information contained in HMRC’s Management Support System (MSS) for a nine-month period in 2014, which is a summary of customs agents’ entries to HMRC’s import entry processing system. While the company itself had made no errors on its BODs, errors had been made by its customs agent when completing the entry declarations. 

In HMRC’s view, which has now been supported by the First-tier Tribunal, this effectively meant that the company had failed to submit accurate BODs to prove it had disposed of IP goods, resulting in HMRC being unable to reconcile them with the MSS data held by HMRC. As a result, all the goods in those BODs had failed to meet the conditions of IP, not just the individual shipments on which an error had been made. As a consequence, HMRC disallowed the company’s IP relief during the whole nine-month period in question and issued a demand for £2.4m customs duty and £6.4m import VAT the company would normally have been liable to on those imports.

Legally, an importer is liable for any errors or omissions made on import entries, even if the mistake was made by their customs agent. While this is generally known and accepted, this latest tribunal decision brings serious implications for other UK importers using IP. It now seems that just one disparity on a customs entry submitted as the goods arrive, or on the bill of discharge submitted after the goods leave the UK, has the potential to disallow IP for the whole period. For some importers, this could result in millions of pounds worth of customs duty and import VAT becoming due. 

This case highlights the importance of checking the data submitted on every customs entry made by an agent to make sure it is correct. In particular, importers using IP should:

  • Request declaration copies from their customs agent once the goods have been imported.
  • Subscribe to HMRC management support system (MSS) data.
  • Reconcile these declarations with their internal records. All data points must be checked. It is not sufficient to only check key data, such as the value, origin and commodity code of the goods imported.
  • Reconcile the entry data on the BOD with the MSS data.
  • Request post clearance amendments from the customs agent as soon as recognised.
  • Promptly report any errors to HMRC themselves, and not rely on the customs agent to make the necessary corrections.
  • Consider using a data analytics tool to manage the checking the various forms of data submitted to HMRC during the process. 

Industries that are common users of IP who should take immediate action include:

  • aerospace;
  • motor vehicles;
  • food production;
  • industrial machinery;
  • chemicals;
  • technology;
  • apparel; and
  • repair and refurbishment activities. 
Brad Ashton
Brad Ashton
Partner, Customs and International Trade
Brad Ashton
Brad Ashton
Partner, Customs and International Trade