The Hidden Truth About Customs Declarations: Accuracy and Responsibility. What Happens When It All Goes Wrong?

In this article Barbourne Brook’s Adam Wood shares valuable insights into the lack of accuracy in customs declarations and asks three important questions that every Financial Director should be able to answer.

It comes as a surprise to many FD’s that ultimate responsibility for customs declarations lands with them, with many being blissfully unaware of their obligations and liabilities. With this lack of strategic direction, it naturally follows that the declaration process is poorly managed, and the accuracy of submissions often falls below professional standards. This leaves the question what happens if/when all this comes to light? And what are the unknown implications of the ongoing situation?

As customs consultants, we frequently encounter businesses working with third parties on their customs declarations. One initial question we ask to find out how well the process is managed is how many third-party brokers they use. Businesses often massively underestimate this number—believing they use just 3 or 4, while their CDS (Customs Declaration Service) data reveals they use 30 or 40.

Our analysis of over 600,000 transactions showed an average error rate of about 34% across brokers and customs agents. This statistic is alarming, considering that one in three declarations could be incorrect. These errors, whether they result in overpayments or underpayments, can significantly impact a business’s finances over time.

3 Key Questions for Financial Directors

As a starting point, we ask Financial Directors these 3 questions. The answers give a good indication of the level of accuracy and risk we might expect to find:

1. How do you ensure your customs declarations are accurate?
2. How is the management of these declarations structured in your organisation?
3. Who is ultimately responsible for customs compliance in your business?

Identifying the Source of Errors

Before blaming brokers, it is essential to understand where the process might be breaking down. Errors could stem from various sources:

• Incorrect master data (classification, origin, valuation) being provided to the broker.
• Data transmission issues to the broker.
• Inadequate processes or procedures.
• Training deficiencies within the broker’s team.
• Simple human error.

Without a thorough investigation, pinpointing the exact cause can be challenging. Therefore, businesses must begin looking inward to gain visibility into their customs operations.

Steps to Fix the Problem

To address these issues, we start by analysing an organisation’s CDS data. This data, stored by HMRC, reflects the actual declarations made by brokers. Often, businesses are unaware that they can easily obtain a copy of this data from HMRC and subsequently find significant discrepancies between their internal records and HMRC’s data.

CAT360, our customs analytical software, can transform this raw data into actionable insights. It highlights potential errors and helps benchmark broker performance against industry standards. This visibility allows businesses to identify problematic areas and implement targeted improvements.

Practical Measures to Improve Customs Declarations

1. Review and refine your master data (classification, origin, valuation).
2. Introduce or refine broker instructions.
3. Consolidate and control the number of suppliers you use, reducing it to a manageable few.
4. Establish clear liability clauses in contracts, ensuring the responsibility is shared or transferred where possible.
5. Implement robust post-clearance checks to catch and correct errors proactively.

Urgency and Proactivity

Given HMRC’s increasingly proactive stance, addressing these issues promptly is crucial. Audits are becoming more detailed and frequent, with a 3-year retrospective window for HMRC to recover underpaid duties and/or impose fines. The sooner businesses begin scrutinizing their customs declarations, the sooner they can mitigate risks.

Why Should You Care?

Incorrect customs declarations often result in underpayments or overpayments of duty. Businesses can reclaim duty overpaid during the previous 3 years. Similarly, during a post-clearance audit, HMRC can claw back any underpayments made within the previous 3 years and, in the most serious cases, also apply penalties.

HMRC’s penalties for incorrect declarations can be severe, with fines of up to £2,500 per incorrect declaration or up to the amount of underpaid duty. For businesses with high volumes of declarations, this can quickly escalate into substantial financial exposure, potentially threatening the business’s viability.  Where inaccuracies are found by HMRC, as part of the customs clearance process, this can lead to significant delays in the release of goods or even seizure and forfeiture of the goods.

Author’s Insight

“We often find that businesses are in the dark about their customs obligations until it’s too late. The sooner Financial Directors take ownership and start scrutinizing their customs processes, the better positioned they’ll be to avoid costly penalties and ensure compliance.”

By proactively managing customs declarations and leveraging tools to gain visibility into the process, Financial Directors can safeguard their businesses against significant financial and regulatory risks. If unsure where to start, consider contacting Barbourne Brook for expert guidance.