Managing Director of TadEx Group
For many UK SMEs, customs is something that happens somewhere between the supplier, freight forwarder and customs agent.
The goods arrive. A declaration is submitted. Duty and import VAT are accounted for. The paperwork is filed away. And everyone gets on with running the business.
That arrangement can work perfectly well. Customs intermediaries provide an important service and can take a significant administrative burden away from businesses that import and export regularly.
But there is a difference between outsourcing a process and outsourcing responsibility.
And that distinction is one that every SME involved in international trade should understand.
HMRC’s guidance is clear: businesses remain responsible for due diligence when they appoint someone to deal with customs on their behalf. Depending on the circumstances and the type of representation used, the importer can remain responsible for the accuracy of the information supplied, as well as Customs Duty and import VAT.
That doesn’t mean businesses need to become customs experts overnight. It does mean they should be confident enough to ask questions.
Your customs declaration is your business data
A customs declaration contains information about your goods, their value, origin, classification, transport arrangements and the taxes potentially due. For an SME, that information can have consequences well beyond getting a lorry across the border.
Commodity codes can affect duty rates and regulatory requirements. Origin can affect whether preferential treatment is available. Customs valuation affects the calculation of duty and import VAT.
Even seemingly straightforward valuation can become more complicated than expected.
For example, HMRC’s guidance states that the customs value must be used when calculating import VAT, with certain additional costs included to arrive at the VAT value. These can include incidental expenses such as transport and insurance costs up to the relevant destination.
So if a business simply accepts the figures appearing on its declarations without understanding where they came from, it may have very little visibility of one of the most important parts of its international supply chain.
You don’t need to replace your customs agent
This isn’t an argument for every SME to start making its own declarations.
There are good reasons to use a customs intermediary. Customs legislation can be complicated, and experienced agents can provide valuable expertise, systems and capacity.
The better question is: Can you understand and challenge the declarations being made on your behalf?
That starts with having access to your own data.
Ask for copies of declarations. Understand the commodity codes being used. Know which valuation method is being applied. Check that the declared values reflect the underlying commercial transaction. Understand how freight, insurance, duty and other costs have been treated.
And don’t be afraid to ask: “Why is this figure on my declaration?”
A good customs relationship should be able to withstand that question.
Audit doesn’t have to mean an investigation
The word “audit” can make SMEs think of HMRC inspections, complicated spreadsheets and somebody arriving with a clipboard. It doesn’t have to mean that.
A simple internal customs review could involve taking a sample of recent import declarations and comparing them with the underlying commercial documents.
- Take the invoice.
- Take the freight invoice.
- Look at the Incoterm.
- Check the commodity code.
- Look at the origin.
- Then look at the declaration.
- Do the numbers and information make sense?
If they don’t, ask why.
That exercise can identify discrepancies, but it can also do something equally valuable: it can give a business confidence that its process is working as intended.
HMRC expects businesses to retain evidence relating to customs valuation and other aspects of their declarations, with valuation guidance identifying documents such as commercial invoices, purchase orders, previous import entries, freight bills and other supporting records.
Control doesn’t mean doing everything yourself
There is a misconception that taking control of customs means bringing everything in-house. It doesn’t.
A business can continue using its broker, freight forwarder or customs intermediary while becoming much more knowledgeable about what is happening behind the scenes.
Think of it in the same way as using an accountant. Most business owners don’t prepare every VAT return themselves. That doesn’t mean they shouldn’t understand their numbers. Customs deserves the same approach.
Your intermediary can do the technical work. Your business should still understand the important decisions, the data being used and the liabilities being created.
The opportunity for SMEs
For many smaller businesses, the first step towards better customs compliance isn’t another system or another consultant.
- It is simply asking better questions.
- What is being declared?
- Why?
- Where did that figure come from?
- Is the commodity code correct?
- Is the valuation correct?
- Are we receiving the information and records we would need if someone asked us to explain the declaration tomorrow?
Those questions aren’t about mistrusting your customs intermediary. They’re about taking ownership of your business. The future of SME customs shouldn’t necessarily be about doing everything yourself.
It should be about understanding enough to know what is being done, why it is being done, and when something doesn’t look right.
So, how much control do you actually have?
A useful starting point is to ask yourself five simple questions.
Do you know which commodity codes are being used for your goods? Do you understand how the customs value is being calculated? Could you explain how the import VAT figure was arrived at? Do you receive and retain the underlying declaration data? And, if something looked wrong, would you know who to ask — and what to ask them?
If the answer to several of those questions is “not really”, that doesn’t necessarily mean your customs process is wrong. It may simply mean you don’t have enough visibility of it.
TadEx Group have developed a simple “How Much Control?” assessment to help businesses think about exactly this. It takes around a minute and is designed to give businesses an indication of where they currently stand — without assuming that using a customs intermediary is the problem.
The objective isn’t to tell businesses they need to do everything themselves. It’s to help them understand what is being done on their behalf.
Because ultimately, customs is not somebody else’s business. It’s yours.
Geoff Yates is the founder of TadEx Group, a customs consultancy helping UK businesses take greater control of their international trade and customs processes. Geoff has 26 years’ experience in logistics, including working with automotive supply chains and high-volume, repetitive commodities. TadEx focuses on practical customs knowledge, better use of data and helping businesses understand the processes being managed on their behalf.