Due diligence when making customs declarations

Your responsibilities as a customs trader

Before you decide to engage in a supply chain, make sure that you understand what your customs responsibilities are.

You should take the necessary steps to make sure your company’s transactions do not lead you to being involved in fraudulent activity.

You are responsible for finding out which rules apply to the operation you’re carrying out and which duties may be payable.

If you do not take due care you could find yourself liable to additional customs duties and import VAT debts because of misdeclarations made by you, or by anyone representing you on your customs declarations.

Appointing a customs representative

You may appoint a customs representative to work on your behalf. Representatives carry out activities such as:

• customs broker
• freight forwarder, sometimes known as a freight or customs agent
• logistics provider
• express courier

If you’re deciding to use a customs representative in any transaction you’ll also need to decide which form of representation you intend to use. You can find out more about getting someone to deal with customs for you.

When HMRC examines the diligence of a customs representative we’ll consider:

• what evidence of commercial checks have been carried out
• what responses were received
• were the checks adequate
• how the representative responded to the results

We’ll also examine:

• the type of representation used
• what authority was given by the person being represented
• what instructions were received to prepare the declarations

By exercising due diligence and carrying out risk assessments you’ll help to make sure your business is being managed effectively. You’ll be taking steps to avoid being caught up in supply chain fraud.

Information and documentation

It’s your responsibility to get enough information, in writing, so you can be sure about the:

• accuracy or completeness of the information and statements required to draw up the customs declaration
• documents attached to the declaration
• compliance of the operations with the rules in force

How to spot potential supply chain fraud

You should be suspicious if those you’re dealing with show any of the following characteristics:

• newly established or recently incorporated companies with no financial or trading history
• companies changing their type of business to an unrelated sector
• contacts that have a poor knowledge of the market and products
• unsolicited approaches from organisations offering an easy profit on high value or high volume deals for no apparent risk
• suppliers repeatedly claiming to be selling bankrupt or end of line stock
• instructions to make payments to third parties or offshore
• instructions to make cash only payments
• instructions to make large lump sum payments to cover multiple invoices
• individuals with prior history of wholesale trade in ‘high value, low volume’ goods such as computer parts and mobile phones
• sale values so low that they appear to you to be commercially unviable
• unsecured loan with unrealistic interest rates and or terms
• instructions to pay less than the full price (and often even less than the VAT invoiced) to the supplier
• established companies that have recently been bought by new owners who have no previous involvement in your sector
• new companies managed by individuals with no prior knowledge of the product, who hire specialists from within the sector
• entities trading from residential or short-term lease accommodation and serviced offices
• trader or director not contactable with an appointed representative in the UK
• companies seemingly unwilling to show you their manufacturing facilities or are difficult to arrange a face to face meeting with
• contracts between parties thought to be unrelated using identical formats

The list is not exhaustive. You may find other indicators.

Your responsibilities as a customs agent

Customs agents play an important role in helping traders fulfil their customs responsibilities. If you’re acting as a customs agent, you should:

• agree in writing that you’re representing a trader in a direct or indirect capacity
• seek and maintain contact with your trader, and ensure you’re informed of any changes to the trader’s business
• keep within the conditions of your authorisation when you’re using customs facilitations
• agree with your trader how the incurred import duties will be paid to HMRC, and ensure there are sufficient funds or security to cover any outstanding import duties (if you are using someone else’s deferment account, written authority from the deferment account holder must be submitted to HMRC)
• agree with your trader how the incurred import VAT will be accounted for to HMRC, ensuring you only use postponed VAT accounting if instructed by your trader

UK Establishment

If you’re directly representing a customer, you need to check if the business is UK established. If you’re directly representing a customer and using your authorisation for simplified imports processes, you should ensure the business is UK established and importing goods into Great Britain (England, Scotland, Wales).

If a business is not UK established, you can only represent them in an indirect capacity, which means you’ll be jointly liable.

Due diligence checks on your trader

HMRC expects customs agents to perform checks on a trader, for example, to demonstrate the ability to pay customs debts incurred for importing certain types of goods. Some of these checks may include:

• checking where the business is established
• demonstrating the business have their own bank accounts
• providing a set of annual financial accounts, including trading accounts and balance sheets
• demonstrating financial solvency or credit worthiness, including whether a company is subject to liquidation or administration proceedings
• demonstrating they are not subject to bankruptcy proceedings or county court judgement (CCJ) orders for outstanding debts
• ensuring your customer has the appropriate certifications and licences in place before the goods are imported, depending on the types of goods
• ensuring your trader has taken the necessary steps to make sure their supply chain is not involved in fraudulent activity

The list is not exhaustive. You may want to perform other checks.

Using your authorisation for simplified processes

HMRC expect customs agents to conduct due diligence checks when using their simplified processes authorisation. You should also:

• hold written approval if you are using your trader’s duty deferment account (your trader must provide written authority to HMRC before you start acting for them)
• take reasonable steps to ensure their deferment level is maintained to cover all incurred debts
• check whether the goods imported are controlled and eligible for simplified processes (for example, excise goods and controlled drugs)

The list is not exhaustive. You may want to perform other checks.

You should contact HMRC where you believe you are representing a trader who may be engaging in fraudulent behaviour or you think has acted non-compliantly.

If you use a duty relief or suspension procedure

If you intend to make a declaration claiming a relief from Customs Duty or import VAT, or both, either in person or through your representative, you have certain responsibilities. You should check that you:

• understand the relief you intend to claim
• are able to comply with the conditions and obligations for the relief

If you’re a customs representative you must make sure your client understands the requirements of the procedure.

How to reduce the risk of tax evasion

An essential part of your due diligence is having the right checks in place so you can make sure the person you’re dealing with is the person they claim to be. This will help protect you from involvement in tax evasion.

Verify if new or potential customers and suppliers are VAT registered

You can verify whether new or potential customers and suppliers are currently VAT registered in the UK by checking their VAT number.

Use the VAT Information Exchange System (VIES) on the European Commission website to verify whether:

• customers or suppliers are VAT registered in an EU member state
• a UK VAT registered business is trading under the terms of the Windsor framework

Be aware however that although this check may validate the VAT registration details, this does not guarantee the status of your suppliers and customers. You should continue to make your own enquiries before undertaking any transactions.

Verify an EORI number

You must have an EORI number if you’re engaged in customs activities with businesses outside of the UK.

You can use the EORI tracker to verify EORI numbers starting GB. However, it is possible that the holder of an EORI number may have opted out of having their details published online. So, for some EORI numbers, the system can only verify that the number is valid and will not show who the number is assigned to. This means you cannot guarantee that the EORI number belongs to your suppliers and customers.

You should carry on making your own enquiries before undertaking any transactions.

Report tax evasion

You can report someone to HMRC if you think they’re evading tax by:

• reporting VAT and tax fraud or avoidance to HMRC online
• contacting the HMRC fraud hotline by phone on 08000 788 887