Anna Jerzewska, Founder of Trade and Borders, discusses the importance of a customs broker and how they can help companies keep up with ongoing changes and updates
It has been a busy couple of years for UK importers and exporters, particularly the ones that trade with the EU. Border controls, checks and other requirements have been introduced gradually on the UK side. For many businesses that meant constant changes and difficulty in keeping track of what was being introduced and when. Policy changes and deadline delays did not help. And 2024 will be a year of big changes on the UK’s borders. It is a good time for UK companies to understand how to work with their customs brokers. In particular, the divisions of roles, responsibilities and liability. Understanding when and how to seek advice from a broker and what the company’s own responsibility is can help to save a lot of time and money.
Importance of a customs broker
A great majority of UK companies use a customs broker to clear goods through customs for both imports and exports. For any trader, the relationship with their customs broker can be an important asset or a serious liability. A good customs broker can act as the first line of support when it comes to all customs and border procedure-related matters. While this is not their primary role, customs brokers can provide ad-hoc advice, and give a heads up that the rules are changing or spot errors. Unfortunately, companies tend to overly rely on their customs brokers without understanding their role in the customs process.
In principle, their role is to submit information provided by the company to customs authorities. In cases where some of the information is missing or requires confirmation and in the absence of clear instructions from the client, customs brokers often rely on their discretion to make a judgment call. But this can be risky as without all the information customs brokers can make mistakes. Usually, this is simply because customs brokers need to process each declaration quickly and do not have the time required to double-check all the information. The industry is not currently regulated in the UK and the quality of advice offered by service providers on the UK market can differ.
Therefore, for any company working with a customs broker, it is important to understand what they are responsible for and when they can rely on their customs broker – particularly now.
The end of flow over revenue
HMRC’s approach to compliance is gradually shifting. Just after Brexit, HMRC decided to prioritise flow over revenue, allowing compliance to take second place. Part of that approach was to allow for full customs declarations to be submitted up to six months after importation with only a minimal amount of data required at the border throughout 2021. This was also just in terms of how non-compliance was approached and the number of checks and post-importation controls.
HMRC’s approach resulted partially from the need to support businesses at a time when so many changes were taking place. It was also due to the lack of capacity and readiness on the Government side. While this was a necessary measure in the early days of Brexit, it did lead to a low level of compliance amongst many UK companies. For example, goods were declared originating from and exported into the EU under preferential tariffs when they shouldn’t have been.
It was always clear that compliance would gradually start being enforced sooner or later. What we have seen over the last few months is an increase in the number of controls and requests from HMRC. According to Barbourne Brook, the penalties from customs audits have increased by 34% over the last 12 months (October 2023 https://www.barbournebrook.co.uk/hmrc-customs-penalties-increase-by-34/).
UK customs authorities have three years after the goods have been imported or exported to go back and request copies of customs, commercial or transport documentation for any entry. If mistakes are found, it may lead to further questions or in some cases a full customs audit. If customs duty was underpaid, it will need to be repaid for up to three backdated years.
Division of responsibility and liability
One of the most common mistakes companies make is to treat their customs broker as a customs adviser and rely on their experience for a number of tasks such as classifying goods and determining their origin or value. Unless specifically agreed in the contract, the broker submits the declaration on the company’s behalf. The company is still legally liable for any information submitted on its behalf to customs authorities. While the customs broker might very well have the experience and knowledge to provide some of this information, they simply might not have the time to do that. Customs clearance is done by declaration and there is pressure to clear goods as quickly as possible and move to the next declaration. Even more importantly, in most cases, the above tasks require a detailed knowledge of the importer or exported products, manufacturing process and other details that only the importer or exporter would have. And stopping the clearance process to go back to the company and collect the required information is often impossible.
In an ideal world, all this information would be provided beforehand. In reality, what happens is that a number of assumptions and shortcuts are made which can lead to mistakes.
Good communication between the company and its broker as well as a clarification of roles and responsibilities can go a long way in preventing issues from arising. Companies need to remember that at the end of the day, they are legally liable for all information submitted on their behalf to HMRC.
Providing annual clearance instructions or updates each time a new product, trade lane or supplier is introduced would be helpful. While this may seem time-consuming, it is far less painless to do upfront than once a post-importation request has been sent by HMRC.
Customs brokers as the first line of support
While customs brokers cannot act as customs advisors as part of their core service, for many companies they are the main source of information on upcoming changes. Customs brokers can help their clients prepare for new checks and documentary and data requirements, stay compliant and take advantage of existing opportunities to minimise the tax bill. This is an important way in which customs brokers can support their clients. Not only when it comes to customs but also in terms of border controls in general.
For example, the final version of the Border Target Operating Model (BTOM for short) was published in August. It outlines how further border controls will be introduced in the UK – the same border procedures that have been introduced in the EU from day one. It is also set in the Government’s wider vision for the UK border as presented in the Border 2025 Strategy document.
That document outlines a new approach to border procedures – an overhaul of current processes set to simplify, streamline and update the way actors exchange data while trading internationally in the UK. It is also closely tied to the introduction of the Single Trade Window, a one-stop shop for all the documents and information required for border clearance.
The changes outlined in the latest version of BTOM apply to not only imports from the EU but also from the rest of the world. Most of the new controls relate to SPS measures that aim to ensure that imported plants, animals, animal products, food and feed, are safe for consumption and pest-free. Rules for imports to Great Britain from the Republic of Ireland are also changing and some of the simplifications available will be gradually removed throughout 2024.
So how can customs brokers support their clients in dealing with these changes? First and foremost, by reminding them of upcoming deadlines. The gradual phase-in of border checks in the UK meant that many companies found it difficult to keep track of everything that was changing. The fact that some of the deadlines for introducing new controls have been postponed several times, and often at very short notice, meant that many companies became somewhat desensitised to the Government’s calls to prepare for new controls. While customs brokers are also guided by what’s officially announced, by the nature of their role, it can be easier for them to keep an eye out for what’s ahead.
Another area where brokers can help is border-related IT systems. For example, the ongoing migration from chief to CDS as the main IT system for submitting import and export declarations. Importers have now moved to CDS, but for exporters, this migration continues and there are new deadlines to come. There are several known issues with CDS and workarounds. This has led to cases where, due to an issue with CDS, companies ended up paying more duties than they needed to because of the way that workarounds work.
Finally, customs brokers can help companies to stay up to date with non-Brexit-related changes. These are, for example, changes in the UK Tariff, such as new commodity codes or spotting opportunities to see if preferential tariffs could be used.
This includes using the UK’s existing trade agreements. Two relatively new trade agreements entered into force last year – the one with Australia and New Zealand. The UK has also joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a plurilateral, regional trade agreement which will enter into force when the UK and all the other parties have finished the ratification process.
It can be difficult for companies to keep track of all the agreements and rates available. A broker can let the company know if a preferential rate is available. It will then be up to the company to check that it can take advantage of these preferential tariffs and that the product meets the conditions.
Customs brokers and new policy measures
With the emergence of new trade policy measures, particularly around sustainability, environment and human rights, the scope of border processes has been changing. With measures such as the deforestation regulation and forced labour ban gradually being introduced in the EU, across the world and in the UK, there will be a lot more customs brokers and their clients will need to keep this in mind.
A good example is the Carbon Border Adjustment Mechanism CBAM). Currently only in force in the EU and affecting UK companies exporting to the EU, will be introduced in the UK by 2027.
CBAM is not a customs measure but like many of these new policy areas, it has a strong border component to it. The EU CBAM is a requirement for EU importers of certain carbon-intensive goods to start reporting on embedded emissions contained within these goods. At the moment, it’s just a requirement for quarterly reports, but eventually, it’ll be a border tax. The first reports, still under the transition period where companies can use default values of embedded emissions, are due on the 31st of January 2024.
UK companies might currently be impacted as suppliers and when the UK introduces its version of CBAM they will be required to submit their own reports.
In an earlier part of this article, we talked about the fact that the company is liable for the data submitted on its behalf to customs authorities. Companies are also required to hold records of all their imports and exports. In reality, however, many companies rely on their broker for this information. With a measure like CBAM where the first steps are identifying shipments in scope and mapping out the company’s imports and exports, a good relationship with the customs broker, or customs brokers a company uses is crucial.
With 2024 now fully under way, it is worth noting that this year is going to be another important one for UK customs and border controls. Also, this transition period is not likely to end soon and will continue into 2025 and beyond. In order to successfully navigate through the ever-changing landscape that is customs and border controls, and the possible challenges that may arise, traders and customs brokers will need to continue to adapt to the constant shifts of our dynamic world and, more particularly, the further introduction and updating post-Brexit border controls.
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