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Analysis of over 600,000 customs declarations* has revealed that they contain an average of 34 per cent errors, made by brokers. Research carried out by consultancy firm Barbourne Brook focused on error rates specifically within freight, mass and currency. These errors mean a business is potentially over or under paying its customs duty.
HMRC is becoming more proactive when it comes to auditing, and given these discrepancies land squarely on the business rather than the broker, import and export businesses are paying the price with finance leaders seeing fines from audits up a staggering 74 per cent since 2020-2021**.
There are many reasons why these costly errors are stacking up; the industry has been slow to digitalise with the declaration process still done manually and leaving room for human error, while businesses and brokers are struggling to deal with the post-Brexit market exploding coupled with an insufficient capacity to service due to high staff turnover rates. Conversely, if a business does not have good processes, then the information given to the broker may be incorrect. In this situation the information going in is meaningless, as is the information coming out.
Adam Wood, Head of Commercial at Barbourne Brook said:
"Businesses wrongly think that what they're giving to their customs brokers is what is being declared in practice. However, our research indicates a different story entirely. Imagine you're importing raw material in USD, but one in every ten transactions is wrongly declared in GBP because the broker's system defaults to this currency. The difference between belief and reality could cost your business thousands, if not more. Whilst some of these errors could be legitimately explained through business nuances, there is a clear call to action for UK businesses to focus serious attention on this area."
Peter Snaith, Partner and Head of International Trade at law firm Womble Bond Dickinson, added:
"Given these high error rates and the fact that most contracts don't include provisions that pass these risks to the broker, it's crucial that business leaders take the necessary steps to avoid hefty fines and penalties. A first step would be to evaluate your current set-up across all the suppliers you engage and establish what error rates you are currently working with. It's also entirely reasonable to require contractual protection for services provided to you which do not achieve an acceptable service level, as you would expect for other parts of your business."
On the flip side, whilst minor errors, compounded over time, can create significant exposures, they can equally amount to considerable savings and/or reclaims. Where businesses have been overpaying duty, they can go back to HMRC for up to three years to reclaim these overpayments. In a recent case, the customs broker for a clothing manufacturer in the UK had not been claiming preference correctly and is now managing through a £2.1 million reclaim from HMRC, which will be a huge cash injection and result in ongoing savings.
*Research was carried out on 107 businesses using Barbourne Brook’s CAT360 analysis tool.
**Based in information released by HMRC in response to a FOI request BY Barbourne Brook.
