Mitigating the top Customs Compliance Risks for Businesses

Navigating the complex world of customs compliance is a significant challenge for businesses, with numerous potential pitfalls that can have serious financial and operational consequences. This insight delves into the top customs compliance risks for businesses and offers strategies to mitigate these risks effectively.

Tariff Classification

One of the primary customs compliance risks is the accurate assignment of commodity codes to imported goods. The Customs Tariff system is notoriously intricate, making it difficult to determine the correct code. Incorrectly classifying goods may lead to underpayment of import duties, leaving your company exposed to audits and customs debts. To mitigate this risk, invest in proper training and resources to ensure accurate classification, or consider leveraging technology and customs experts for assistance.

Origin

With the UK's departure from the EU, claims of 'EU preferential origin' are under scrutiny. Non-compliance in this area can lead to penalty actions and potential customs assessments in your customer's country. To minimise the risk, it's crucial to understand Tariff Preference and Origin rules thoroughly. Maintain comprehensive documentation and transparent supply chains to provide evidence of origin when necessary.

Incorrect Payment of Customs Duties

Inadequate understanding of your imported goods' duty liabilities can lead to inefficient cost management. HMRC can issue customs debts up to three years after import, jeopardising revenue. To avoid this risk, invest in robust financial systems, and engage with customs experts to ensure proper cost allocation.

Incorrect Claim for Import VAT

The post-Brexit increase in DDP Incoterms usage has shifted importer responsibilities. Businesses must confirm whether they've incurred VAT through Postponed Import VAT Accounting. Mismanagement of VAT claims can lead to HMRC assessments for non-reclaimable VAT. Ensure clear communication and agreements with suppliers regarding VAT responsibilities to mitigate this risk.

Lack of Customs Knowledge

Many businesses were thrust into the world of customs compliance with limited prior experience. This knowledge gap is not lost on HMRC, who are actively monitoring new importers for compliance. To mitigate this risk, invest in customs training for your team.

Temporary Imports

Temporary imports, such as goods on loan, for exhibitions, or testing, pose specific customs challenges. Correctly using special procedures is crucial to avoid unexpected duties or non-reclaimable VAT. Work closely with customs experts to understand these procedures and negotiate with suppliers to minimise tax risks in such cases.