Customs records for Revenue Audit

 Where are your Customs Records?

The title of this article might seem unusual at first but take a moment to think about it. Some regulations must be followed if your company is involved in exporting, importing or both. One of these regulations includes obtaining, verifying, and retaining copies of Customs documentation, along with commercial paperwork such as transport documents and  invoices related to those imports and exports. So, let’s revisit the question: Do you know where your Customs records are? Who keeps a copy of all the import and export Customs entries? Is there a list or log that links these entries to your commercial paperwork? Are invoices stored in the finance department without being connected to the transport paperwork? And is it easy to trace these . Good record-keeping can not only ensure compliance but also streamline your operations and protect your business from potential penalties.

We ask this question because, in recent years, we've encountered several instances where companies were left in a state of panic, at best, and facing Customs penalties because they didn't know where their records were. A common scenario involves a single employee who took it upon themselves to manage collecting and retaining the necessary paperwork for Customs compliance. Management was content that someone was handling it—one manager even admitted, "Well, we didn't really know what they did or why." As the employee appeared competent, no formal procedures or reporting requirements were established. However, when that employee left or went on long-term sick leave, the company lost all knowledge of their Customs compliance processes and the location of the records. This may be hard to believe, but along with those employees went the entire understanding of Customs compliance within the company.

Putting this together after the event has proven difficult and time-consuming.  Here are some situations we’ve seen:

1. The records belonging to the person looking after Customs matters were held on the company laptop; no one else in the business asked to look at them, and if finance did want to check something, the paperwork would be shared.  When the person left the company, their laptop was wiped and given to a new employee.  The company policy was that data should not be stored on laptops. It is still on the central server, but as the former employee explained, they had asked for a specific area to be set up for Customs compliance, as without this central point, all the different paperwork would be saved in different unlinked areas of the server. Still, it hadn’t happened, so they set up their private system, which was lost in a stroke.  The company did have duplicates of most documents dotted around in different folders controlled by various departments so the records could be rebuilt over time, but it highlighted a lack of awareness and respect from management as to the importance of maintaining good Customs records.

2. An employee left the company abruptly after a dispute and shortly before a scheduled Customs audit.  Very few documents were held electronically, and the office was full of files containing paperwork, so the company was confident that it had good records to support the Customs audit. However, when reviewing the files, not every document had been printed, and the most common omission was a copy of the official Customs entry.  Eventually, the former employee’s email folder was examined, and all Customs entries and other electronically produced documents were found in general folders within their email account - import entries in a big ‘Import’ folder, going back years.  They were not linked or cross-referenced to the printed commercial paperwork but had to be reviewed against the dates and values to see if they could be tied together to make compliant files for HMRC's audit.

3. A new manager joined a company and asked where the Customs paperwork was held; they were told it was all retained by their freight companies.  On checking, the freight companies either didn’t keep records longer than three months or held some paperwork but not all commercial documents.  The freight companies had not formally been contracted to retain records for the importer/exporter, but the assumption had been that they just would.  Also, none of the Customs entries had ever been checked by the company.  Again, they had just assumed that the agents had done them correctly.  The business had changed freight companies about three times in two years, and companies they no longer used didn’t rush to support the company’s new requirement to collate the paperwork needed for Customs compliance.  On eventually getting paperwork for goods bought from an overseas supplier, the new manager estimated that on this alone, they had overpaid Customs duty in the region of £80K, as the freight companies had guessed the commodity code for the goods based on a very poor description provided by the supplier.  The decision was made to focus on compliance from now on and review back 12 months to see if there were any significant issues.

Let's reiterate the key question: Do you know who, if anyone, is responsible for maintaining the records required for Customs compliance? Are you aware of where these records are stored within your system? What compliance checks are being conducted on this data, and how easily can these records be accessed and retrieved? Clear answers to these questions are not just important, they are crucial to ensuring your company's Customs compliance. In addition, at the stage of an REVENUE audit, it will demonstrate that the business is competently managing its compliance requirements for imports and exports.