What are the chances of HMRC auditing my company?
Andrew Thurston · August 4th 2023 · read
HM Revenue & Customs (HMRC) are required, under UK customs legislation, to carry out reviews of international trade activities to ensure that the UK’s borders are working effectively, and the correct taxes are being paid to HM Treasury.
These audits can be time-consuming, stressful and, potentially, expensive for companies with audits lasting in many cases for months rather than days.
How are companies identified?
HMRC operates a sophisticated risk profiling system that draws information from within the Department to identify possible risk trends. From a customs perspective, this could be in relation to a significant customs debt is raised on a UK importer due to the use of an incorrect commodity code. HMRC will use this data to identify potential other importers and, if the risk is considered sufficient, raise compliance audits to those targeted importers.
Where a company imports goods into the UK and is declared as the importer on a UK customs declaration, HMRC will use this data to risk score the company and determine whether a compliance audit is required.
The likelihood of an HMRC customs audit will depend on the type, value and origin of the imported goods. If you import goods that fall within high-tariff commodity codes or are subject to reliefs, such as Inward Processing or Tariff Quotas, then your company is more likely to be identified for a customs audit.
In addition, HMRC does occasionally conduct audits at random with your company’s name popping up in their Risk system or if your company has been subject to a recent compliance issue within another tax that triggers an audit.
We also expect HMRC to upscale its activities in auditing companies who have exported ‘UK Preferential Origin’ goods as it is required, under the trade agreements, to ensure that those goods qualify under the applicable rules of origin.
How will I know if I am being audited by HMRC?
You will receive contact from HMRC, usually via written correspondence, to confirm that the company has been selected by HMRC for a customs compliance audit.
The correspondence will confirm the format of the audit (e.g. desk-based or premises) and provide a date for submission of the requested documentation or date of the intended visit to your premises.
What will the HMRC Customs Audit cover?
- An HMRC Officer will interview the person responsible for customs matters within the company to establish the international trade activities and current procedures for ensuring compliance with customs legislation. This will either be completed via a Teams video call or at the company premises.
- An audit usually covers a three-year import and/or export period preceding the audit start date, so it is critical that your company maintains satisfactory records otherwise it could be subject to a customs debt and penalty action.
- The HMRC Officer will request specific documentation but could, if required, examine all imports and/or exports in the preceding three years to confirm the extent of any irregularities and potential customs debts.
Is there anything I can do to prepare for a Customs Audit?
Yes, there is. HMRC expects a company to have satisfactory procedures in place to effectively control the accuracy of the customs declarations submitted in its name.
MHA have experienced ex-HMRC experts who can provide valuable advice and assistance to any company involved in importing or exporting goods. Our Team can conduct a review of your customs exposure to identify any areas of concern and provide the required services to plug any gaps in knowledge or processes.
This will ensure your company is ready for a HMRC customs audit which will reduce your costs of having employees sidelined to collate documentation during the audit and also ensure that you can increase efficiencies in managing the customs data for your imports/exports whilst improving your overall compliance. Ensuring your company does not experience any sudden and potentially significant customs debts which could affect the profitability of your business operations if not properly managed.
Just because you have not received a customs audit yet, it does not mean you will not receive correspondence in the post tomorrow! At MHA we advise clients to be proactive as it provides peace of mind and the likelihood of efficiency savings due to improved processes and reduction in ‘lost time’ due to resolving customs issues.
Our experiences since Brexit have revealed that HMRC is taking a special interest in ‘new’ importers drawn into the customs arena as a result of their continued trading with the European Union. Most importers did not (and continue to not) have the necessary knowledge to ensure that they comply with UK customs legislation. Alongside our Customs Compliance Review service, MHA also provides a half-day training module that has been specifically developed in response to Brexit to help upskill employees with the necessary knowledge and skills to manage your company’s customs affairs.
What should I do after a Customs Audit?
If you’ve been subject to a Customs Audit, the HMRC Officer will provide a Closure Letter detailing the areas of your import/export activities that require review and introduction of processes to manage compliance.
It is important to read the points raised by the HMRC Officer as these will be reviewed during any future Customs Audits to determine your company has improved its compliance in these areas. Failure to do so could render the company liable to civil penalty action which could also result in increased interactions by HMRC on other taxes.
We recommend that you review your current processes to ensure these are sufficient to maintain compliance with customs legislation. MHA can assist with this process and help identify possible efficiency savings or we can complete the management of your customs compliance for you via our Outsourced Customs Compliance Manager.
Our ‘Coping with Customs’ training is available for businesses seeking to enhance their employees' understanding of customs procedures.
Just because you have had an audit, it doesn’t mean that the company can forget about customs compliance. The regular review of customs ensures that your business is ensuring its costs are accurate and cost-savings are identified and implemented.
Get in touch
We highly recommend that you review your current level of customs knowledge to ensure your business remains compliant and efficient in international trade. To facilitate this process, our expert team offers a range of comprehensive services that can be tailored to your specific needs:
- Consider conducting a Customs Compliance Audit to identify potential areas for improvement and risk mitigation.
- Explore the option of an Outsourced Customs Manager who can expertly navigate the complexities of customs regulations on your behalf.
- Empower your team with specialised training to enhance their understanding of customs compliance and facilitate smooth cross-border transactions.
Please feel free to reach out to us for any further assistance or to discuss how our services can be customised to address your unique business requirements.