The Upward Trend in HMRC Customs Duty Audits Looks Set to Continue

We have been contacted by several companies undergoing an HMRC Audit, which has been unheard of historically.

HMRC are seen to be proactive in this approach as, since Brexit, revenues collected now go directly to the UK Treasury.  We lodged a freedom of information request from HMRC that confirmed our thoughts.  There is an upward trend in customs duty audits by HMRC, and the number of audits resulting in penalties has already risen by 28%.  It is more important than ever that your business is Audit ready.

Some of our clients see this as an opportunity to fully review their customs landscape. With so much change to legislation since Brexit, we recommend this approach as a sensible solution.

Customs is an audit-based control and HMRC have 3 years to go back on your records. Small issues now can snowball into large exposures in the future.

Risks Associated With Not Being Audit Ready Are Very Real

• Assessment of any underpaid customs duties, eroding margins and working capital;
• Penalties up to the value of underpaid duty;
• Removal of customs duty relief regimes;
• Supply-chain delays;
• Reputational damage to risk score; and
• Failure to meet Senior Accounting Officer (SAO) provisions.

Case study

This example is a famous historical case for a major supplier to a high street retailer where a business went into administration after a customs audit.

HMRC had concerns that the clothing being manufactured did not meet the proof of origin rule and, therefore, should not be imported under the GSP agreement at a NIL rate. HMRC investigated and decided to send a team to the factories manufacturing the clothing for the businesses being audited. The rule of origin showed that the clothing must be manufactured from yarn to qualify for the GSP treatment. In this instance the rule of origin was not met and, subsequently, the directors of the business were interviewed under caution, and HMRC demanded the underpaid duty plus penalties going back three years. This ultimately meant the company could no longer trade as the duty demand went into the millions and they went into administration.