In this article, customs consultant Monica Ryder, Barbourne Brook, highlights the lessons to be learned from a recent court appeal by Chelsea shoe retailer, French Sole against HMRC, where 517 pairs of shoes, valued at £24,076, were seized and ultimately destroyed due to an admin error resulting in just £2,442.78 of unpaid duty.

Monica said: “Customs declarations are laborious and complicated, and there are many process points where mistakes can inadvertently be made.  This case highlights a clear message to businesses – HMRC holds importers entirely responsible for ensuring that their declarations are accurate, true and compliant and where attention to detail fails, penalties can and will be enforced. This can be extremely costly – such as in this case where the underpayment was less than 10% of the value of the destroyed goods.”

French Sole imported a consignment of 517 pairs of shoes, 96 of which were found on inspection to be misclassified.  The declaration stated that all shoes were categorised as 100% leather, but some of the shoes were found to be made partially of other materials such as velvet, suede and glitter.  In addition, an error in an Excel spreadsheet resulted in a 77% undervaluation of the imported goods.

French Sole argued in the case that the mistake was an accidental administration error, caused by the inexperience of the individual who completed the relevant documentation – stating that she had no previous experience in importing shoes – and claimed the penalty was excessive. The Court acknowledged that there was no evidence to suggest that the misclassification was deliberate but considered the undervaluation a careless error.

An image of various shoes on sand

Monica commented: “With so many commodity codes and intricate details differentiating one category from the next, it’s natural to assume that errors will be made and that there would be a marginal allowance for that, but sadly that is rarely the case.  It is the duty of HMRC to ensure that fair and appropriate payments are made and where oversights occur there are few mitigating circumstances.

“In this case, Seko Logistics were acting as the agent for the importer.  Where an agent is in place, we have found that the importer can be under the impression that the agent takes responsibility for the accuracy of the declaration. However, this is not true – the importer is ultimately legally responsible for the accuracy of the submission.”

Ryder continued: “Similarly, information for customs declarations is often provided by different people in different areas of a business, with each party assuming that another department or individual is completing due diligence before submission. The process for submission varies hugely between businesses and the responsibility often does not form part of any job description.  Furthermore, those completing the submissions lack the skills to make a submission or an understanding of the crippling impact of minor errors.”

Customs duty is subject to inspections both at the port and post-importation.  While the latter can result in recovery of unpaid duty and financial penalties, any errors identified at the port can result in seizure and destruction of the goods – which is often a much higher loss for the business.  HMRC’s policy is not to restore goods on which duty and the associated import VAT has not been paid unless there is an exceptional basis for doing so.

An image of a ship docked at a shipyard with several shipping containers

To conclude, businesses should take note of the costly price that French Sole have paid for their errors and where necessary, prioritise a review into the way that customs declarations are processed, clarifying where responsibility lies and ensuring that appropriate training and support is in place.

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