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Forwarders left carrying the can in customs clampdown

[ April 29, 2016   //   ]

The British International Freight Association (BIFA) notes that HMRC is placing more emphasis on compliance, with stricter enforcement the inevitable outcome.
VAT fraud is a particular concern is VAT fraud and the forthcoming Union Customs Code (UCC from 1 May includes legislation that can be used to tighten up certain regimes.
BIFA notes that in its latest annual report on the VAT Gap based on 2013 figures, European Commission figures showed a €168bn difference between VAT due and collected amounted, due to fraud and evasion, tax avoidance, bankruptcies and miscalculation.
Director general, Robert Keen says that the problem is partly that trade has moved on significantly, whilst regulators have reacted slowly to these changes. “In particular, what we will refer to as Internet Trading and the Onward Supply Relief regime seem to particularly lend themselves to fraud.  Some overseas websites openly proclaim that they value all goods at a certain price to circumvent the ‘De Minimis’ threshold.”
Before Christmas 2015, Customs raided warehouses which it was believed contained goods supplied by overseas online traders that were being sold in the UK without VAT being paid or accounted for.  Goods worth many hundreds of thousands of pounds were seized.
Anecdotally, some BIFA members have become very suspicious of goods being imported under the Onward Supply Relief regime and concerned about their liability relative to VAT.  Others are becoming very sceptical about internet-based trade, particularly where the declarant is based overseas. Some members have reported that the pattern of trade and vehicles supplied to move goods for exports from the UK to other EU Members States does not make sense to them.
Large internet traders have been publically-scrutinised and questions have been asked in the House of Lords about the issue, with demands that Amazon be made liable for the unpaid VAT of thousands of customers. Customs has been heavily criticised for failing to take adequate steps to stamp out non-compliance.  Part of the problem is that it is very difficult to identify the buyer and seller.  Where the goods are received on a (Delivery Duty Paid) DDP basis and local taxes are invoiced outside the EU there is no guarantee that the VAT will be added to the value of the goods.
Recently BIFA has been contacted by members, which imported goods on behalf of a party outside the EU on a DDP basis.  All taxes including VAT were billed back to the origin and the monies never paid, leaving the forwarder out of pocket and goods in free circulation on which VAT had not been paid, undercutting legitimate traders by 20%. But then BIFA demanded that the import pay the unpaid VAT in full.  As there is no other representative in the EU or UK, the forwarder cannot claim the protection of being a direct representative, and at best they may be jointly and severally liable as an indirect representative; at worst they become Self Representing, with full liability for the Customs debt.
Throughout the EU there is a move to examine whether third parties can be held liable for the VAT failings of their customers.  Freight forwarders and logistics providers, due to their role, are obvious targets as they facilitate trade across frontiers, provide warehousing and clear goods through customs.  Authorities increasingly consider that these providers have an obligation to be aware of the tax status of their customers.
Keen adds: “BIFA always advises that forwarders should ‘know their customer’ and carry out reasonable checks on them.
The UCC includes three elements which may be used by customs authorities as part of their clampdown. The first is that all warehouse keepers under the UCC will be required to provide guarantees on the import duty payable.  The second UCC Article which re-enforces an existing requirement simply states that ‘the declarant shall be based in the customs territory of the Union’.  This has very significant consequences for the unwary.   If there is no EU-based company to take responsibility for the import customs declaration the forwarder when clearing goods will have to carefully consider their liabilities because they will become fully responsible for the accuracy of the customs declaration and any debts.
Thirdly, under the UCC many companies will have to seek re-authorisation for current simplifications and regimes.  All re-authorisations will need to be undertaken by 30 April 2019. During this process there will much greater contact than normal between Customs and Trade and the former will as part of their role scrutinise processes and compliance.

BIFA is now recommending that forwarders always carry out due diligence checks on new customers including obtaining, where appropriate, VAT and Deferment numbers. For UK limited companies, their Companies House number should be obtained.  All details should be verified using the appropriate website. It is essential to ensure that the declarant is an EU-based entity

Forwarders should also always challenge the use of multiple EORIs by single entities.

In addition, they should incorporate BIFA Standard Trading Conditions into any contract and it is highly recommended that the customers’ acceptance of the terms is confirmed in writing.
They should pay particular attention where business to customer imports are non-EU based online retailers using a fulfilment house model and/or where Customs Procedure Code 42 has been used.

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