Have retailers fallen into post-Brexit compliance traps?

Ian Worth
2 January, 23

In the almost two years since the UK left the EU, the retail world has experienced many challenges, not helped by lockdown-enforced closures of bricks and mortar outlets, or supply chain difficulties arising from displaced containers around the globe. As COVID-19 restrictions are eased and supply chains start to recover, the attention of retailers is turning to the post-Brexit customs landscape.

Pre-Brexit, the UK Government forecast that leaving the EU would result in an increase in customs declarations from around 50m a year to around 250m a year. The first Brexit compliance trap came in the form of an easement that eliminated the requirement for a customs declaration on entry to the UK, allowing importers to record the relevant details, then submit their declaration and payment up to six months later. In mid-2021, this easement was extended for a further six months, ostensibly to allow more time for importers to prepare but missing the obvious point that those delaying their declarations during the second half of 2021 were obligated to submit their declarations for the first half of 2021. Thus, HMRC recorded only around 80m customs declarations during 2021, with the expected forecast increase having gone missing.

Many importers failed to submit their supplementary declarations within the required six months. In many instances, importers had their declarations delayed by their agents, sometimes without their knowledge. No flags were raised by businesses who experienced very little change to the way they had previously dealt with EU supplies, some are still oblivious to their liability.

Retailers can obtain their declared import data directly from HMRC’s MSS reports (Management Support System), in a spreadsheet format. This is exactly the same data that HMRC use to select their audit targets, with close attention where the data indicates potential errors. Careful monitoring of this data can keep a business informed of any anomalies with a chance to correct errors quickly before they become the subject of an intrusive customs audit.

HMRC is starting to increase its audit activity, with a particular focus on the accuracy of import declarations made since 1 January 2021 and targeting declarations for import shipments from the EU, where preference was claimed. The EU/UK trade agreement signed in late 2020 was publicised as delivering a Brexit bonus of “tariff-free, quota-free” trade. The small print, largely ignored by many importers, showed that preference was subject to strict (and very complex) rules of origin, which meant that preference could be claimed only where there was evidence that the goods were manufactured in the EU. HMRC’s audits are uncovering several instances where preference was claimed on goods that were not eligible, resulting in unexpected demands for underpaid duty.

Trap #2 was laid, in the form of another easement, allowing UK retailers to claim preference without having the required evidence of origin, on the basis of “importer’s knowledge”. HMRC audits are discovering that “importer’s knowledge” was rarely operated correctly, and sometimes even abused. The small print required the organisation claiming importer’s knowledge to obtain satisfactory evidence of origin by the end of 2021. Following that, it has been a requirement that evidence of origin must be held by the importer at the time of shipment. Some customs brokers have adopted a default practice of declaring “importer’s knowledge” simply to clear shipments without payment of customs duties.

The learning point here is that if the supplier has not provided a statement on origin, the main reason is likely to be that the goods don’t meet the rules of origin, so attempting to circumvent the requirement for evidence by claiming “importer’s knowledge” is not going to end well.

Trap #3 is the reliance on clearance agents to make compliant declarations. Clearance agents are service providers, who can only make declarations using the information provided by the importer they are representing. If the information is incorrect or vague, or if there is no detailed instruction to the agent, there is a high likelihood that the resulting customs entry could be incorrect, with too much, or too little duty paid.      

The customer experience, particularly for online retailers, has continued to be a high priority, but Brexit has presented challenges and costs in maintaining the seamless nature of online supplies to customers in the EU. In a single market where goods could move freely between members of a Customs Union, the only challenge for the retailer was logistical. Now UK retailers have a customs border to contend with too.

The need for customs declarations for shipments between the UK and the EU has highlighted a lack of communication between the key players in the supply chain. In some cases, it has also highlighted a lack of knowledge about customs obligations, and for many retailers, a need to understand how data can support customs compliance, and identify risks and opportunities.

A final challenge for retailers (for the moment) is the UK’s cost of living crisis and global increase in costs, with the weakened GBP particularly affecting importers who have already contracted in USD. This emphasises the importance of compliant customs procedures and declarations, such that the importing retailer can confidently ensure that they are paying no more in customs duties than absolutely necessary.

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