TT Talk - Alert to customs representation
Recent years, not least consequent on Brexit, have seen greater opportunities for logistics operators to provide customs related services to their customers. While potentially new and lucrative revenue streams, these services do not come without risk as TT has highlighted previously. In what precise capacity an operator acts will affect the potential liability exposure. In this edition we take a look at risks applicable European Union wide, but specifically relating to a series of challenges identified in the UK.
Customs representation continues to be an important part of the work completed by freight forwarders and logistics operators for their customers. In the context of risk, it is generally prudent for operators to engage in such activity as a ‘Direct Customs Agent’ (a ‘Direct Representative’ in pre-Brexit terminology).
it is generally prudent for operators to engage… as a ‘Direct Customs Agent'
In many cases, however, this will not be possible, because the customer or importer is a ‘Non-Established Taxable Person’ (NETP – not established in the UK). Where a logistics operator undertakes an import entry for a NETP, that can only be done on the basis that the operator acts as an ‘Indirect Customs Agent’ (‘Indirect Representation’ in pre-Brexit terminology).
When acting as an Indirect Customs Agent, the operator assumes joint and several liability for any Customs debt arising out of the entry. Customs debt includes duties, import VAT and any fines or other levies imposed arising out of the importation of the goods and includes any liability arising out of a post-entry demand. Post-entry, the UK HMRC may assess, for example, that the value of the goods was under-declared, or an incorrect commodity code used, and that additional duty or import VAT is therefore payable.
When acting as an Indirect Customs Agent, the operator assumes joint and several liability
Operators should also be aware that even when acting as a Direct Customs Agent, personal liability may arise. This would be the case where the operator knowingly made a false declaration. Specific issues arise in relation to entries made under the ‘Postponed VAT Accounting’ (PVA) procedure. Legislation requires that the Customs Agent undertakes quite stringent due diligence in relation to those on whose behalf PVA entries are submitted; a failure to do so exposes the operator to personal liability for the postponed VAT. As a useful reference point HMRC have published a guidance document “Due diligence when making Customs declarations”.
Warning about UK-incorporated companies
Operators should also be aware that they may unwittingly fail to recognise that a UK-incorporated company is in fact an NETP, and that they cannot properly act as a Direct Customs Agent (regardless of the box ticked within the customs declaration system). In such cases, the operator will be treated as an Indirect Customs Agent and assume joint and several liability.
There is an increasing prevalence of both DDP1 shipments and foreign based e-tailers or other foreign sellers holding their stock in the UK in fulfilment houses pending sales being made while the goods are in the UK. These circumstances have given rise to increasing requests to operators to act as Indirect Customs Agents. It will be for operators to undertake their own due diligence and satisfy themselves that the customers are “good for the money”, including possible post-entry demands.
It will be for operators to undertake their own due diligence…
It is not straight-forward to identify the extent of the financial exposure that exists, considering that HMRC can look back several years when assessing entries and making post-entry demands. Problems in relation to PVA entries will take several months, at least, before they come to light. Will your customer still be around and willing to indemnify you after such a passage of time?
Regardless of the protections that might be contractually available under the operator’s standard trading conditions (STCs), if the customer is not good for the money (or not accessible to effective legal process due to inefficient or inaccessible legal systems in the customer’s place of domicile) then this will be little consolation. Operators should not take false comfort from the contractual provisions in their STCs. However, where the customer is financially sound, the operator’s STCs could provide the tools required to ensure that the operator is contractually entitled to be reimbursed for liabilities that may be incurred in discharging the customers’ instructions. It would be prudent for operators engaging in this type of activity to undertake a legal review of their STCs accordingly.
operators engaging in this type of activity [should] undertake a legal review of their STCs
BIFA’s strong advice, which TT would endorse, is to:
- Ensure that you undertake careful due diligence of all customers for whom you act as a Customs Agent
- Do not presume that a UK registered company will not be treated as an NETP
- Do not take any information at face value
- Check EORI and VAT numbers to ensure that they are valid and registered to the party seeking to use them (and re-check that information on a regular basis).
- Be vigilant to the possibility of fraud.
- Obtain written authority directly from the importer on whose behalf you act, to act as its Customs Agent. BIFA have published a useful guide on Good practice on the Appointment and Responsibilities of a Customs Agent.
- Commodity Codes should be checked, and declared values should be sense-checked.
- The method of valuation should be considered, if Method 1 (the transaction value) is to be used, is there a genuine transaction underpinning the movement of the goods into the UK? If not, Method 1 may not be the appropriate method and you will have to consider which method should be used by referring to HMRC guidance.
- Be cautious of ‘commercial invoices’ that are in fact a document created by the importer for import purposes only and not representative of a genuine transaction.
There are clear risks involved in acting as a Customs Agent, whether Direct or Indirect, and it is important to understand those risks and to assess carefully the likelihood of your customer being willing and able to indemnify you for any financial obligations that fall at your door.
We gratefully acknowledge the assistance in the preparation of this article of Robert Windsor of the British International Freight Association
1 His Majesty’s Revenue and Customs, the UK government department responsible for the administration and collection of taxes.
2 ‘Delivery Duty Paid’, an international trade shipping term delineating responsibilities between seller and buyer. See https://www.ttclub.com/news-and-resources/publications/incoterms-2020/
If you would like further information, or have any comments, please email us, or take this opportunity to forward to any others who you may feel would be interested.