Policy & Compliance
and agencies is not thorough enough. One of the most frequently quoted examples relates to VAT numbers; until recently Members could identify overseas-based entities because the VAT office address was in Aberdeen, but this is no longer the case. Now that the Aberdeen office has been closed, it is not possible to identify whether a company is established in the UK relying solely on checking information on government and its agencies’ websites. In fact, BIFA is becoming increasingly concerned about the thoroughness of checks conducted before company registration numbers, VAT and EORI numbers are issued. At the very point that relying on government resources becomes a less reliable source of information, we note increased compliance activity by HMRC. There have been major issues with the valuation of goods for several years and recently the UK government, depending on the information source, has had to pay between £1.7 billion and £2.3 billion to the EU over import VAT fraud. In 2018, the EU commission sued the UK for €2.7 billion on the grounds that the UK had failed to pass on the correct amount of tax for imports between 2011 and 2017. This problem has not gone away. In fact many will argue that government has introduced measures that will actually increase the likelihood of fraud being repeated. Members should be very wary of acting as Customs agent for any business importing into the UK on a DDP basis where there is no UK established entity to act as an importer of reference. Becoming liable It is essential to realise that if the overseas VAT registered entity disappears, the UK Customs agent is likely to find itself liable for unpaid taxes, etc. Also, if there are any pre-, or for that matter, post-clearance issues then the Customs agent will be legally obliged to co-operate with HMRC in its investigation. The agent will be liable to pay penalties, additional duties and taxes, etc, as it was acting as an indirect agent. One Member confirmed that it has started conducting very thorough due diligence on overseas parties in the country of origin. This is expensive but cost-effective compared with the penalties and back tax it might have to pay in the previously mentioned scenario. The Member advised that what it had discovered was “shocking”; the list of non-compliance issues included deliberately mis-declaring clothes sizes on the invoice so that the entry could be zero-rated for VAT purposes, under-declaring the unit price and lastly shipping more goods than detailed on the invoice. The latest guidance from HMRC states: “If you have a UK VAT or UK Economic Operator Registration and Identification (EORI) number, this does not necessarily mean or provide sufficient evidence that you are established in the UK,” – a salutary warning that has to be heeded. Also, not all traders are registered at Companies House, which adds an additional level of complexity. In order to protect themselves, forwarders will have to conduct additional due diligence checks. The evidence that you should ask to see includes, but is not limited to:
Many Members are fully conversant with this legal requirement and ensure that they have the correct empowerment. Direct agents However, in order to be a direct agent, Schedule 1 of the TCTA 2018 Section 2 “Eligibility of persons to make a Customs declaration” makes specific reference to the often-overlooked question of establishment. The law is clear on this stating that “persons may make Customs declarations” only if “they are established in the United Kingdom or a specified place outside the United Kingdom”. In the simplest language, it means that for an import agent to act as a direct agent for an importer, the last named must have an establishment in the UK. We will examine the criteria later, but it varies dependent on the business structure of the business. Our first point is that there are inconsistencies in the definition of ‘Established’ between different government departments and also sometimes between different Customs regimes. BIFA’s general comment is that Members should be very wary about what they check and taking it at face value. There are significant concerns that the level of due diligence conducted by government departments
“ It is essential to realise that if the overseas VAT registered entity disappears, the UK Customs agent is likely to find itself liable
May 2023 | 13
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