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Customs compliance: Are you doing the right thing? Try these quizzes today!

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Customs compliance: Are you doing the right thing? Try these quizzes today!

Jessica Yang

Jessica Yang

Director, JY XBorder Consulting Ltd.

Toby Spink

Toby Spink

Director, BKR Consultants Limited

In the article “Customs compliance: Are you doing the right thing? Try these quizzes today!“, published in the Customs Compliance & Risk Management journal, Jessica Yang and Toby Spink offer the reader to take two quizzes based on typical business scenarios observed this year.

When buying or selling goods across a border, it is considered a good business practice to understand the rules applied on the other side of the border. This is because the decisions you make when selling the goods can have a significant influence over the decisions and responsibilities of the business buying them on the other side.

Whilst nobody wants to pay for the mistakes of another party, Customs authorities will often deem the importer liable for mistakes made by both the buyer or the seller. In our previous articles, we discussed how mistakes can be identified and additional costs applied years after the import has happened. These mistakes are sometimes a result of something the exporter has (or has not) done.

This article contains two quizzes based on typical scenarios we have seen this year. If these conversations appear familiar to you, try to spot the mistakes and take note of the tips we have provided at the end of the article, on best practices to avoid them.  

Quiz 1 – Background: UK supplier of goods sourced from outside the UK is selling to a customer in the EU.

  • EU customer’s logistics manager: Hi, our broker says we don’t need to pay any duty when we buy UK goods. Apparently, we just need a statement on the invoice or some other commercial document from you. Can you reissue the invoice with the statement included? See attached the wording the broker gave us.
  • UK supplier’s sales manager: Sure! Let me get our finance team to reissue the invoice and get it to you asap.
  • EU customer’s logistics manager: Thanks! The duty rate is high on this product, we are keen to avoid having to pay this.
  • UK supplier’s sales manager: No problem, we’ll stick the statement on the invoice to help you get preferential treatment! The goods are already sitting in our warehouse, so we’ll state they are of UK preferential origin.

A week later…

  • UK supplier’s sales representative: Here is the updated invoice. We’ll include this statement on all the invoices from now. Hope it helps!

Question: Has the UK supplier’s sales representative done the right thing?

Answer: No.

Without first checking if the goods actually meet the rules to qualify as having UK preferential origin, it is wrong to include the statement on the commercial invoice. Furthermore, this assessment should be carried out for each product. Since a commercial document could not cover both products that have a preferential origin as well as ones that do not, it must clearly identify which products meet the rules of origin and which do not.

The consequence of the mistake: Whilst the EU customer may initially be able to import all the goods free from duty when the EU customer gets a post-import customs audit, the Customs authority could assess customs duty underpaid in the previous three years and demand that it is paid retrospectively. Depending on the number of transactions, the value of the goods, and the applicable duty rate, this could be a significant amount.

Quiz 2 – Background: EU supplier of goods sells third country goods that have not been imported into the EU. The goods are shipped from an EU customs warehouse to the UK customer’s warehouse.

  • EU supplier’s logistics manager: Hi, the goods are scheduled to be delivered next Wednesday. Our freight agent says the goods are travelling under T1. The T1 needs to be discharged in the UK so they get their guarantee back.
  • UK customer’s warehouse manager: Thanks for the update, can’t wait to receive the delivery, really hope there aren’t any delays!

A few days later…

  • EU supplier’s logistics manager: Hi, did the goods arrive? Our freight agent says their transit guarantee wasn’t released. Apparently, the driver didn’t discharge the T1 properly in the UK.
  • UK customer’s warehouse manager: The driver dropped the goods off already. I heard we didn’t even have to pay any duty, which is great!

Question: Has the UK customer’s warehouse manager done the right thing?

Answer: No.

Having been told that the goods are traveling under T1, the warehouse manager should have known that the goods need to be customs cleared and the T1 discharged. Therefore, accepting the goods which have not been customs cleared was incorrect. Of course, the driver working for the freight agent should have been aware that the T1 must be discharged at a designated location in the designated manner.

The consequence of the mistake: The UK buyer needs to rectify the error of receiving goods that were not customs cleared when they arrived. HMRC will usually waiver the applicable penalties applied to importers and exporters who voluntarily disclose any mistakes or errors that result in the incorrect amount of duty and VAT being paid. The EU supplier will also need to help its freight agent to discharge the T1 so that their guarantee is not blocked.

Here are three tips on how to get better at doing the right thing:

  1. Raise awareness across departments. Buying and selling goods across the border involve many departments within a business. The key staff should all have a basic awareness of what customs compliance is and the consequences of not meeting these requirements.
  2. Establish a customs function. A stand-alone customs function within an organisation helps the rest of the business to see the importance of customs in cross-border trade. It also clarifies roles and responsibilities which improves compliance.
  3. Learn about the rules your supplier/ customer needs to follow. Last but not least, we all enjoy doing business with competent and considerate partners. Learning about the rules your suppliers/ customers need to deal with will allow you to proactively manage the customs activities both parties need to complete. This will help build a long-lasting business relationship.  

Want to learn more about customs compliance but don’t have much time?

Mini-course on customs covers the key principles of customs from both the UK and EU perspectives. It can be taken from anywhere, at any time, at your own pace.

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