What to Expect During a Customs Audit

Customs audits enable governments to ensure that goods moved into or out of the country are declared correctly. They are one of the tools governments use to police the border, collect revenue and protect their home markets.

In the UK, HMRC conducts routine checks with importers and exporters to confirm compliance. Companies involved in international trade must abide by the requirements laid out in legislation. This usually involves extensive record-keeping and careful interpretation of written regulation. Failure to do so leaves a businesses at risk of litigation, suspension of activities or even penalties.

If your organisation has been contacted by HMRC in relation to a customs audit, you may be feeling a little uncertain about what to expect. But, provided you take the steps to ensure compliance, the procedures should pass smoothly and satisfactorily. Often, it won’t even be necessary for a customs officer to visit your premises; inspectors can scrutinise electronic declarations remotely.

On the other hand, neglecting to carry out the necessary groundwork can easily see businesses fall foul of an audit. This can incur a customs debt, which will hamper operations and damage reputation and credit scores. Companies should avoid this possibility through preparation and research. Thankfully, clearBorder is here to assist.

We provide industry-leading training and consultancy in all matters concerning international trade, and helping our clients ensure that all customs declarations submitted are water-tight is what we do. In this blog post, we’ll cover customs audits in more detail, what to expect during the process, and how to guarantee your organisation’s ongoing compliance.

What are Customs Audits and Why Do They Take Place?

HMRC will contact you directly if your business records are due for an audit. You’ll be provided with a factsheet, which gives a top-level overview of the process. It’s important to keep this document safe, as you may need it on hand during the audit.

The purpose of a customs audit is to ensure that your organisation’s processes and other business records are correct. It may be that the authorities will examine your records immediately following the import or export of goods; conversely, it’s entirely possible that documentation dating back several years can be audited. This is one of the key reasons why it’s so important to keep accurate and well-organised records on file.

In reality, HMRC cannot inspect every shipment entering or exiting the country. They therefore require international traders to declare goods to verify their nature and charge the correct duties. The authorities then conduct routine checks on traders’ documents in order to safeguard the integrity of customs declarations.

Under UK law, customs officers carry out these checks which may take place at warehouses or depots. The types of checks that can occur include:

• Desktop audits: An inspection of transactions between traders and Customs authorities.
• Focussed audits: Usually held at traders’ premises to make sure that both physical and electronic declarations are available.
• Warehouse verification audits: Conducted to verify documentation of goods entering or exiting a warehouse.
• Self-assessment audits: Involves a trader completing a survey, to be reviewed by customs authorities before they make a decision over whether to hold an in-person audit.

What to Expect During a Customs Declarations Compliance Check

HMRC will notify you regarding exactly which documents they wish to see during an audit. If it’s difficult for you to facilitate a check – for example, for personal or health reasons – customs officers will do their best to accommodate your requirements. For more information on this, you can visit this government page.

It’s also possible to nominate a proxy to act on your behalf; HMRC may however still need to deal with you directly about aspects of the audit.

How and what to prepare

If HMRC deems it necessary to visit your premises, an officer may wish to see documentation and goods relating to your trading, and/or verify your compliance in matters with customs procedures. The inspector may ask to see documents such as (but not limited to):

• Financial accounts
• Paperwork regarding imports and exports
• Business contracts
• Details about imported/exported goods
• Other relevant business records

What happens during an audit?

It is not possible to ignore a notice of inspection, and the authorities may use the powers of the law to ensure that an audit takes place. In-person checks will almost always occur at your business premises, and arrangements can be made to find a mutually convenient time, although officials do not have to announce their visit beforehand. Typically, a visit can consist of:

1. A discussion regarding the nature of your operations
2. An inspection of business records
3. A record being made of details relevant to customs treatment
4. A check on individual aspects of your business, such as administrative protocol, authorisations, licences or registration
5. An inspection of the location and goods contained therein
6. A sample of goods
7. A marking of goods already inspected
8. Requests for assistance where reasonable
9. Seizure of goods found to be in violation of regulation

You may speak to the inspecting officer at any time if you are unsure of what’s going on, have a question, or find that a particular request is not reasonable. Following a customs audit, there will usually be a follow-up meeting between customs officials and company stakeholders to discuss the findings. The business will be given a preliminary report regarding the outcome, and has the opportunity to raise any questions or queries.

If you need more time

In the case of exceptional or mitigating circumstances, you can apply for extra time in order to make preparations. This is not a common practice but permissible in the event of a legitimate reason. HMRC lists serious illness or bereavement as examples of good grounds for delaying an audit.

What documents may be asked for?

For both importers and exporters, any business-relevant documents may be requested, seen and audited by HMRC. This includes digitally-stored data, such as financial records kept in a computerised spreadsheet. In other words, you must provide customs with any records that bear a connection to your operations upon request; failure to do so can result in a penalty fee. This can include things like accounting ledgers, freight receipts, supplier correspondence, invoices and packing lists.

It’s also worth noting that HMRC has the right to remove any original records. If this happens, the customs official will issue you a receipt, which you should keep safe until such time as the original documents are returned to you.

If You Are in Violation

If a customs audit finds that you have not complied with customs laws on import, export or goods processing, you may have to pay a fine. A violation would occur in such instances as:

• You do not follow customs regulations
• You cannot demonstrate appropriate licences and registration
• You have falsely-declared goods
• You are unable or unwilling to produce requested information
• You record-keeping is not of an adequate standard
• Your documents do not contain correct information
• You remove goods from customs supervision without proper authorisation

Giving information known to be untrue

In the case that you provide information which you know not to be true, customs officials may initiate a criminal investigation and pursue prosecution. False declarations may be contained within a document or communicated verbally. This includes falsely declaring the amount of duty or claim payments you are entitled to.

There is, however, an important distinction to be made between falsehood and genuine mistakes. The purpose of a customs audit is to determine your business’s level of compliance in a given area; an unintended error or discrepancy will be highlighted but not necessarily punished harshly.

Your Rights and Responsibilities

Importers, exporters and traders are afforded certain rights which they may take advantage of at any time during the process. In turn, there are a number of responsibilities and obligations which you must uphold. It’s important to understand your entitlements and obligations surrounding a customs audit, as they can have a significant bearing on the eventual outcome.

You have the right to be represented at any time – by a person of your own choosing – provided demonstrable authorisation has been granted. Whoever you choose to represent your business, however, you are obliged to take “reasonable care to get things right.” This includes verifying any documents sent to HMRC by a third party, such as a financial advisor or business consultant.

Sail Through Customs Audits and More with clearBorder

Knowing what to expect during a customs audit, and the things you should prepare beforehand, is the first step to ensuring that the process goes off without any issues. It’s worth noting that a customs check does not constitute suspicion or presumption of trading malpractice; authorities may shortlist and select any company involved in import/export according to risk management rules established by HMRC.

At other times, selection can be genuinely random, so being notified of an upcoming audit is not necessarily a reason to panic. In general, it’s highly advisable to make sure you keep accurate records of operations on a daily basis, and file information efficiently – do this, and you’ll be extremely well-positioned to facilitate a smooth and satisfactory customs audit.

If you’d like more expert border advice and training, the clearBorder team is here to help. We see compliance as integral to an efficient business and can help you improve your readiness for audit and your bottom line.

You may be interested in this clearBorder webinar on customs compliance, in partnership with Unsworth.

At clearBorder, work closely with our clients eliminate the risk of non-compliance, upskill their team, improve customer service and keep the right side of the law. To find out how this might look for your business, reach out to us today.