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CIP 27 (2017) Due Diligence When Making Customs Declarations

1. Introduction

Fraudulent behaviour within Customs and International Trade (CIT) supply chains poses a threat to public finances through lost tax revenues.
The expansion of online retail is fuelling increased flows of goods imported into and through the UK, to markets across Europe. Many of these imports are at risk of being significantly undervalued when declared for import. This activity is defrauding the UK and EU of duties and taxes.
This fraudulent behaviour is being facilitated by businesses not exercising appropriate levels of due diligence. Those businesses are placing themselves at risk of involvement in supply chains that are connected with fraud. By not taking due care in your business dealings you could find yourself liable to additional customs duties and import VAT debts as a result of misdeclarations made by you or by those representing you on your customs declarations.

2. The appropriate level of diligence

This isn’t an exact science and the levels will vary depending on the specific transaction. Put simply, you should always satisfy yourself that you have the requisite evidence to support the accuracy of your customs declarations, including authenticity of supporting documents.
This starts by making sure that you understand what your customs obligations are before you decide whether to engage in a particular supply chain.
Once you understand your obligations you should take all reasonable measures to ensure your company’s transactions don’t lead to your involvement in transactions connected with the fraudulent evasion of duties and taxes.
Customs traders are responsible for finding out which rules (in particular those published in the Official Journal of the European Union (OJEU)) apply to the operation they’re carrying out and on which duties may be payable:

  • customs traders are defined in the Customs Traders (Accounts and Records) Regulations SI 1995/1203
  • the majority of the customs rules are provided in the Union Customs Code and its implementing provisions

Information explaining these customs rules and procedures is available at Import and export: customs declarations, duties and tariffs.
If the legal requirements of the procedure or duty relief claimed aren’t met, you as the person making the declaration, or the person in whose name the declaration is being made, may become liable to any customs duties and import VAT due.
For further information refer to Customs debt liability.
HM Revenue and Customs (HMRC) will examine the degree of care with which a business selected a customs representative to whom it entrusted the preparation of its customs declarations.
When deciding on whether to use a customs representative in any transaction you will also need to determine which form of representation you intend to use. You can find out more about Direct and Indirect representation in the Customs debt liability page.
Before entering into a transaction, you should consider the risks associated with it and then decide the appropriate levels of due diligence required.
This might involve undertaking research on the product/market, researching the customer(s), entering into written contracts or other relevant checks. You should also take into consideration the way in which the transaction has occurred or is about to occur. You must consider the potential risks and satisfy yourself as to the integrity of your suppliers and customers, and of the underlying supply chains. See section 3 below for some suggested indicators that might help you identify the risks (this is not an exhaustive list). It’s your responsibility to determine what checks to carry out and whether to undertake transactions in light of the results of those checks.
You can find further information about dealing with other businesses in VAT Notice 726: Joint and several liability for unpaid VATSection 6 explains how to ensure the integrity of your supply chain and gives some examples of checks that you may wish to carry out.

3. How to spot potential supply chain fraud

You should be suspicious if those you’re dealing with show any of the following characteristics:

  • newly established or recently incorporated companies with no financial or trading history
  • companies changing course of business to an unrelated sector
  • contacts have a poor knowledge of the market and products
  • unsolicited approaches from organisations offering an easy profit on high-value/volume deals for no apparent risk
  • suppliers repeatedly claiming to be selling bankrupt or end of line stock
  • instructions to make payments to third parties or offshore
  • instructions to make cash only payments
  • instructions to make large lump sum payments to cover multiple invoices
  • individuals with prior history of wholesale trade in ‘high value, low volume’ goods such as computer parts and mobile phones
  • sale values so low that they appear to you to be commercially unviable
  • unsecured loan with unrealistic interest rates and/or terms
  • instructions to pay less than the full price (and often even less than the VAT invoiced) to the supplier
  • established companies that have recently been bought by new owners who have no previous involvement in your sector
  • new companies managed by individuals with no prior knowledge of the product, who hire specialists from within the sector
  • entities trading from residential or short-term lease accommodation and serviced offices
  • trader/director not contactable with an appointed representative in the UK
  • companies seemingly unwilling to show you their manufacturing facilities or are difficult to arrange a face to face meeting with
  • contracts between parties thought to be unrelated using identical formats

This list is not exhaustive, you may encounter other indicators.

4. Customs representatives and due diligence

A customs representative is someone who is appointed by another person to carry out activities for them that are required under customs legislation. For example a customs broker, freight forwarder (also sometimes referred to as a freight or customs agent), logistics provider or an express courier.
When HMRC examine the diligence of a customs representative we will consider the following:

  • what evidence of commercial checks have been carried out
  • what responses were received
  • were the checks adequate
  • how the representative responded to the results

We’ll also examine the type of representation used, what authority was given by the person being represented and what instructions were received to prepare the declarations.
By undertaking reasonable and proportionate due diligence and risk assessments you will help to ensure that the business is being managed effectively and that reasonable steps have been taken to avoid being caught up in supply chains fraud.
If you’re uncertain as to the:

  • accuracy or completeness of the information and statements required to draw up the customs declaration
  • the documents attached to the declaration
  • about the compliance of the operations with the rules in force

it’s your responsibility to obtain sufficient information, in writing, to reassure you about the authenticity of the documents and the integrity of the transaction.

5. If you use a duty relief/suspension procedure

If you intend to make a declaration claiming a relief from Customs Duty and (or) import VAT, as the person making the declaration or the person in whose name it’s being made, it is your responsibility to check that you fully understand the relief you intend to claim and are able to comply with the conditions and obligations for that relief.
If you’re a customs representative advising a person you’re representing to use a customs procedure involving a duty relief/suspension, you’ll be aware that there are certain conditions and obligations associated with it. You must ensure that they fully understand the requirements of the procedure. You should refer them to the relevant Import and export notices.

6. How to reduce the risk of tax evasion

An essential part of your due diligence is having appropriate checks in place to ensure that the person you are dealing with is the person they claim to be to help protect yourself from involvement in tax evasion.
You can verify whether or not new or potential customers and suppliers are currently VAT registered by using the VAT Information Exchange System (VIES) run by the European Commission. Please be aware that although this check may validate the VAT registration details, this doesn’t serve to guarantee the status of your suppliers and customers. You should continue to make your own enquiries before undertaking any transactions. It remains wholly your own decision with whom you choose to trade.
You may already be aware of the requirement to have an Economic Operator Registration Identification (EORI) number if you’re engaged in customs activities with other businesses in the EU and businesses outside of the EU. This number is unique to you and can be recognised throughout the EU.
You can verify an EORI number on the Europa website. Please be aware that the holder of an EORI number may have opted out of having their details published online. This means that for some EORI numbers the system can only verify that the number is valid and won’t show who that number is assigned to. Therefore it doesn’t serve to guarantee that the EORI number belongs to your suppliers and customers. You should continue to make your own enquiries before undertaking any transactions. It remains wholly your own decision with whom you choose to trade.
You can report someone to HMRC if you think they’re evading tax by:

  • reporting VAT fraud
  • reporting Tax fraud
  • contacting the HMRC fraud hotline on Telephone: 08000 788 887

Issued on 1 December 2017 by Customer Strategy and Tax Design, Customs Directorate, HMRC.
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7. Your right and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

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