Recent reports indicate an increase in customs audits and enquiries from HMRC. Gavin West, VAT and Indirect Tax Partner, explains the situation and how business owners can make sure they are prepared in advance.
Failing to prepare for an audit at customs could have a significant financial impact on your business, including higher duty payments, financial penalties and increased scrutiny from HMRC in the future.
If your business carries out frequent imports and exports, or is looking to enter the international market, making sure you are prepared for a customs audit should be a priority.
What increases the risk of a customs audit?
Businesses that are most at risk of an audit include those with complex supply chains, high levels of trade or a perceived compliance risk.
‘Perceived compliance risks’ may be influenced by your business sector, the type and value of your goods and the origin/destination of the import/export.
The following risk factors are likely to increase your chances of being targeted by HMRC for a customs audit:
- Operation of a suspension regime
- Inconsistent VAT or duty payments
- Changes in trading volumes or your supply chain
- Declarations that are incomplete or contain incorrect information
- Historic issues with compliance
Many customs audits are conducted at random, so it is important to be prepared even if the factors above do not apply to your business.
What happens in a customs audit?
If you are subject to a customs audit by HMRC, you can expect a thorough review and inspection of your verification documents and goods. The process is comprehensive, as HMRC will carry out an in-depth compliance review.
Any errors identified during the audit are likely to have a financial impact on your business, whether that is from a direct financial penalty or indirectly through operational delays and cash flow disruption. Penalties for errors and/or interest charges for underpayments of customs duties can also apply.
How to prepare for a customs audit
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Organise your filing systems
Make sure that your documentation is easy to access and collate quickly in case an unexpected customs audit comes your way. Incorrect or incomplete documents could lead to financial penalties and delays at customs.
Key documents that HMRC will want to see include invoices for imports and exports, VAT and duty payment records, customs declarations and tariff classifications.
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Construct a case that demonstrates your compliance
Take a proactive rather than reactive approach to compliance by preparing a document that clearly outlines how your business complies with customs regulations. Within this document, you should reference industry and regulatory standards and demonstrate your business’ ongoing compliance by evidencing results from past audits.
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Seek support from customs specialists
Support and guidance from a specialist in VAT and customs is the best way to prepare your business for a future customs audit and guarantee a successful outcome.
Comprehensive customs support from PKF’s VAT specialists
Our VAT experts can support you with customs audit preparation. Our comprehensive customs planning and audit preparation services identify and mitigate compliance risks to ensure your business is always ready for an unexpected audit.
In addition to establishing and maintaining your audit compliance, we can:
- Help you reduce your customs duty costs by highlighting reliefs and opportunities to enhance your current processes.
- Examine historic customs duty payments from the past three years to find out if you have over-paid and are eligible to reclaim.
- Explore customs planning options to assess whether there is scope to improve your long-term gross profit margins.
Get in touch with PKF Smith Cooper today to find out more about how we can help your business prepare for customs audits.
