Intrastat Supplementary Declarations – reasonable excuse?

I have always believed that if you had a reasonable excuse for having failed to submit you Intrastat SD on time, then Customs would not penalise you. I’m now told that, except for some very strict ‘events’, there is no such thing as ‘reasonable excuse’.   Is that correct? A.         Yes and no, I’m afraid. The  term 'reasonable excuse' is not defined in law and excuses accepted by HMRC tend to be those which they consider to be reasonable, e.g. mainly those events which are unforeseeable or unusual and beyond your control, although they do say that they will look closely at the circumstances of each case. According to HMRC, a reasonable excuse might involve: a failure in the HMRC computer system, your computer breaks down just before or during the preparation of your online return, a serious illness, disability or serious mental health condition has made you incapable of filing your SD, documents being lost through theft, fire or flood, electrical faults, These are pretty strict examples and could only be invoked if one of the problems listed stopped you from submitting your data. However, each case should be considered on its merits. Other ‘excuses’ have been accepted in the past, such as misleading advice on postal delivery times, or the previous incumbent in the job had failed to let you know that a declaration was due, but these seem a touch tenuous, especially as HMRC emails a reminder about your SD if you’re part of their ‘Alert Service’ . Reasonably enough, HMRC will not accept an excuse as ‘reasonable’ if you haven't made a reasonable effort to submit your data on time. They quote the following as fairly obvious unacceptable examples. You: found the online system too complicated to follow, left everything to your accountant to do and they let you down (NB In this case the law provides specifically that you do not have a reasonable excuse if you relied on someone else to perform any task for you), forgot about the submission deadline, or did not try to re-submit your SD on time once a problem with the IT system was put right .  However, a number of recent First Tier tax tribunals have overturned HMRC’s concept of what constitutes a ‘reasonable excuse’. Excuses tendered for late filing of tax returns, for instance, have been supported by the courts as reasonable, using European Court of Human Rights rulings, supporting the argument that HMRC’s idea of ‘reasonable excuse’ was based on some exceptional circumstance and therefore ‘unreasonable’. In fairness, HMRC do say that if you can show that your conduct was that of a conscientious business person who accepted their compliance obligations, then there may be a reasonable excuse. Remember that HMRC state that genuine mistakes, honesty and acting in good faith are not accepted as reasonable excuses for penalty purposes. But don’t immediately accept HMRC’s decision if you feel you have a valid reason for, say, submitting your SD late. Courts have been showing a trend towards business-friendly rulings, adopting a commercial approach to what is reasonable and this could ‘colour’ HMRC’s opinion. However, remember, ignorance is still no excuse, unless I suppose you can prove that HMRC withheld the knowledge that would have allowed you to comply, but that’s probably unlikely… the small print will find you out! You should make every effort to comply and not rely on the excuse that you had to vacate your premises unexpectedly, due to a plague of locusts… unless of course that’s what happened!

Evidence of Shipment

“Evidence of export consists of two types, official and commercial. For VAT purposes there is no mandatory requirement to retain official evidence of export so equal emphasis should be placed on the acceptance of either official or commercial evidence to substantiate zero-rating. The official and commercial transport evidence must be supported by other supplementary documentation associated with the supply, such as the customer’s order, inter-company correspondence, despatch note, acknowledgement of receipt, evidence of payment, etc.” Full details on the supplementary evidence required are in Notice 703 Export of goods from the United Kingdom. Taken together, the transport and supplementary evidence must show that a transaction has taken place and the goods have actually left the Community. Official evidence is normally: A Goods Departed Message (GDM) where the goods are exported directly out of the UK to a third country destination - see VEXP40400. The GDM is generated by the National Export System (NES) when electronic export declarations are processed. The GDM is only acceptable as export evidence when the Input Customs Status (ICS) code = 60 and the Status of Entry is coded = 8). A certified Export Administrative Document (EAD) also known as the Single Administrative Document (SAD) (Form C88) Copy 3, or NES declaration (as you describe). These must show an official Customs stamp from the office of exit from the EC where the goods exit the EC from another member State. In this case the GDM will show an ICS code = 61 and is not acceptable as official evidence of export unless supported by the stamped copy 3 SAD. Confirmation from the New Community Transit System (NCTS) that the Community/Common Transit (CT) procedure has been discharged. In addition, where an exporter subscribes to the MSS Data to the Trade Service, an MSS report showing ICS code 60 and Status of entry (SOE) code 8 is acceptable official evidence of export. Commercial evidence comprises two types: Primary (eg Master air waybills) Secondary (eg authenticated house air or sea waybills). Along with these transport documents you will also have to provide your own commercial documentation, including payment details, as a basket of evidence.  Ensure the transport documents show clear details of how the goods moved along with the endorsement that they have flown or been shipped.  This is a problem with FPOs because the consignment notes are not acceptable as commercial evidence. HMRC advise that Audit Officers will accept the FPO Global Certificate of Shipment and Air Waybill for VAT zero rating purposes. Also, it is advisable to obtain and retain the Proof of Export (POD) showing the date and signature the goods were received by the customer.

Tariff Classification – Draft Procedure Tips

One of the questions we get asked often by UK companies is:  “how do I put together a written procedure for tariff classification”?  So we drafted out a skeleton around which companies may add their actual procedures.  We thought we’d share it with you, hope the following helps: Introduction: All UK businesses must declare any imports or exports to HM Revenue and Customs (HMRC). This is to ensure that any import VAT, duty, excise or levies due on them under UK and European law are collected. How different goods are classified largely determines what duties and controls apply to them. HMRC uses commodity codes found in the Integrated Tariff of the United Kingdom (the Tariff) to classify individual products. Classification of commodities is necessary for import and export declarations as well as Intrastat returns. Other government departments also rely on Tariff classification for licences and other documents. The Tariff is based on the EU TARIC (Tariff Intégré Communautaire). Member states of the EU hold commodity codes in the TARIC. Commodity codes and other regulations are updated daily, which ensures that importers and exporters can rely on the same standards and treatment throughout the EU. The UK Trade Tariff uses the daily updates of the TARIC directly, so that Tariff users have access to consistent accurate information. The person responsible for tariff classification matters is ******* (include name/position of persons involved) reliant on information provided by purchasing and sales teams as required.  The instructions are issued to all import agents with regard to tariff classification and import entries are received and checked to ensure compliance.  Data is also managed via the HMRC MSS information received. Records of product data and commodity codes are maintained by ******** as well as being listed on the import spreadsheet The tools used when classifying a new product include the HMRC Tariff Book and the www.gov.uk website link.  Full data is obtained from the relevant internal department.  If no obvious commodity code applies then in the first instance the HMRC Tariff Classification helpline is contacted (Tel 01702 366 077).  Depending on this discussion a Binding Tariff Information Ruling (BTI) may be requested.

A BTI is legally binding throughout the European Union (EU) for up to six years after the date of issue and provides the correct commodity code for your goods with a unique reference number.  Once obtained we must enter the BTI reference number in Box 44 of the Single Administration Document (SAD), which must accompany your goods throughout the EU.  BTI’s currently

History of Customs: The mysterious link to Year 3

Anyone who is interested in the history of the Music Hall may know the catchphrase of an old comic legend “Now here’s a funny thing!” (Max Miller – in case you are wondered).  Well, here is a funny things – most of the anniversaries relating to Customs take place in a year ending with a 3.  Here’s a few – 743 -  The earliest written record of Customs dues chargeable on medieval ships is to be found in a Charter dated 743, granted by Aethelbad, King of Mercia, to the Abbey of Worcester.  This allowed the Abbey the dues of two ships: “Which shall be demanded by the collectors in the hithe of London Town”.  1203 - The centralized English customs system can be traced to the Winchester Assize of 1203, in the reign of King John.    1303 -  The custuma parva was introduced by Edward I in the Carta Mercatoria which placed both trade and customs duties on a firmer footing and involved the levying of the Aliens Customs or butlerage, a tax on wine to be paid only by aliens (anyone who is not a national or citizen of the United Kingdom). 1643 - Excise duties on home produced articles were first imposed to provide money for Cromwell's Parliamentary Army and then continued by King Charles II for ‘royal purposes’. Excise duties are inland duties levied on articles at the time of their manufacture, such as alcoholic drinks and tobacco 1673 -  Charles II established the Board of Customs 1683 -  Charles 11 set up the Board of Excise to run alongside the Board of Customs 1803 – The Customs Act passed this year led to the construction of new customs warehouses in nearly every port around the coast of England.  The Act permitted the placing of all types of goods into a customs controlled warehouse pending payment of duty, not just excisable goods 1823 -  The foundation of the modern whisky industry can be dated from this year when an Act was passed to reduce the small stills in the Highlands and introduce not only an annual licence fee for distillers but also a duty on the alcohol produced according to the proof gallon. 1973 -  Purchase Tax was superseded by Value Added Tax (VAT) in the UK.  And, of course, UK joined the European Community (EEC) 1983 – CEDRIC: Customs & Excise Departmental Research and Information Computer – was set up to store records held by the Investigation Division on the Central Reference Unit (CRU) and the manual Investigation Division Indexes. 1993 – the Customs Union was established, bringing with it harmonized customs duties and Intrastat declarations. 2003 – NES was adopted at all airports in the UK

2013 – well, we’ll have to wait and see but we were originally going to get the introduction of the Modernised Customs Code in July 2013.  This has now been renamed the Union Customs Code but changes will probably miss the “Year 3” connection.

Part 3 – The Beginnings of the English Customs System

We know that Customs duties have been levied in Britain from at least the 8th Century but in fact they are probably as old as civilization itself.  Though there is no written or physical evidence to support it, England must have operated the Roman system of portoria (see earlier blog ) , for the collection of taxes on imports, exports and goods in transit (tolls) as the country (especially Londinium) was an importance centre of commerce and trade for the Roman Empire.  Excavations in Lower Thames Street, London uncovered the remains of a Roman quay, sadly not finding any evidence as to the possible site of a Roman portoria or Custom House, but the Customs Service has been closely linked with the sea, ships, quays, wharfs, warehouses and, of course, goods for centuries, so who needs evidence? The earliest written record in England of actual Customs dues charged is in a Charter dated 743, granted by Aethelbad, King of Mercia, to the Abbey of Worcester.  It allowed the Abbey the revenue from the dues collected from two ships: “Which shall be demanded by the collectors in the hithe of London Town”.   In 745 a further charter, from the King of Mercia again, granted: “the toll and tribute of one ship which formerly accrued to me by rights” to the Bishop of London. Most ancient customs in England consisted of fees, like these, paid by the merchants for the privilege of using the king's warehouses, weights and measures and the name “customs duty” supposedly came from the fact it was an inheritance of the king by immemorial usage and common law, (ie customary) and not granted through statute; this definitely changed going forward when “government” became involved in customs. It was not nationally organised at this time but ran on separate grants being issued at individual ports. (Further other definitions see blog 1) It was in the year 979 that we find real documentary evidence of systemised import duties in England.  King Etheldred established a system at Belingsgate (Billingsgate), in the port of London, for collecting import duties on ships and merchandise.  The duty was levied at:  ½d on a little ship 1d on a larger ship with sails A ship full of wood, one piece of wood as tax Men of Rouen who shall come with wine or large fish shall give a due of 6s Men from Flanders, Normandy and France shall be free of tax. There were other duties on cloth, cheese, butter and eggs.  Even in these early days, with the various exemptions, the duties were complicated to calculate, collect and administer. After the Norman Conquest a type of excise duty was introduced to take tax advantage of the considerable increase in the import of wine, especially from Gascony.  This duty on the new wine importers was called “prise”, collected in kind by the King’s butler  - mainly to supply the King and his Court with wine.  It didn’t take long for the “prise” to change from casks of wine to money – this fiscal tax was called “butlerage” and it survived until the early Nineteenth Century. To see a centralized, formalised English customs system we need to move forward to the Winchester Assize of 1203-4.  The great administrator and tax enthusiast King John decreed that: “the customary dues at the ports”, ie money/ taxes due, should be accounted directly to the State Treasury, payable to the King personally and not through the local lords and sheriffs.  King John should, therefore, be given the credit for establishing a Customs service on a national scale responsible directly to the Crown.  King John’s other major administrative achievements included the establishment of the Exchequer, the reorganization of the Navy and establishing the foundations for a formal national Archives – oh, and annoying a certain hero/robber called Robin Hood. King John’s decree at Winchester Assize established a duty of one-fifiteenth on all imports and exports (called the “quidecima”), led to the formation of a Customs Service when he employed six or seven 'wise and substantial men, well versed in the law' to account to him for the revenue, established ports where goods could lawfully be imported or exported and set up the first know Custom House in very close proximity to Billingsgate.

The next blog will look at these first Tariff Charges and development of the English Customs Service.

Part 2 - Duties, taxes and tolls: so nothing's changed

So, after reading Part One of our History of Customs & Tariff blog  Hyperlink 1, you now know where the first tariff “book” was found (Palmyra/ Syria AD136) and what the words customs, duty, excise and tariff means.  But what we’re talking about here isn’t something with no current relevance; what started centuries ago with the introduction of “customary dues” being collected, based on a menu of costs (taxes), was the systematic taxation of everyday people which continues today. Customs Duties are taxes levied upon commodities imported into or exported from a country and, though no longer important instruments of commercial policy, transit duties or tolls which played a role in directing trade and controlling certain trade routes. Tolls were introduced in the Middle Ages and became very important during the mercantilist period of 16th–18th century, lasting into the middle of the 19th century in some countries.   Duties have always formed one of the most important sources of the public revenue to be used at the rulers’ or governments’ discretion.  Actually the device of raising revenue from the quantity or value of exports and imports occurred naturally in all commercial states in need of money, at a very early stage of its history.  And a big momentum to the growth of these taxes was the need for money to wage war.  It was much later that the charging of customs duty on imports developed from just being an income generator to also being a mechanism  to trying and slow down foreign competition to protect domestic industries.  Gottfried von Haberler in “The Theory of International Trade” (1937) suggested that the best way to distinguish between revenue duties and protective duties (disregarding the motives of the legislators) is to compare their effects on domestic versus foreign producers. Ancient Duties The Old Greeks in Athens imposed a duty of 2% on imports and exports over the Pierian Mountains from which they derived a considerable revenue from their customs.  They also levied an additional duty for the use and maintenance of the harbour (harbour fees). During the Peloponnesian war the Athenians, to replace the tribute paid by their subject states, they introduced a duty of 5% on all commodities exported or imported by such states.  By this means they hoped to raise more revenue than they could via direct taxation. A duty of 10% was established for a time by Alcibiades and other Athenian generals on merchandise passing into and from the Euxine Sea. Chrysopolis, near Chalcedon, was fortified and a “station for the collection of the duties” built. The Romans also levied customs duties, under the name of portoria, these appear to have always existed as we have no record of their introduction and they are referred to in Ancient writings by guys such as Livy.  Portoria were levied on all goods imported by merchants for the purpose of re-sale, including slaves (trade has always struggled with morals), but things imported for the use of the state or for a person’s own use were exempted from it except “luxury” goods such as eunuchs and handsome youths. And along with the Roman duty system came the well know business of … smuggling.  At import or export a list of purchased items had to be lodged with the official responsible for collecting the tax, this official also had the right to search travellers and merchants.  If goods subject to a duty were concealed they were, on being discovered confiscated. (See nothing is new in the world of customs!) So universal did these duties, local and national, become, that every continental nation was fairly covered with a network of customs lines. It is interesting to note though that, despite all these taxes being collected, international trade not only continued but grew. Once introduced, these duties seem to have been accepted without riots and, as they were profitable and difficult to abolish, many of them remain until the present time.

To end this blog here are the words of a customs officer (Veljko Velikić,) from Vršac, published in the magazine “Carinik” (Customs Officer) in November 1926. “Customs profession, one of the oldest trades (emerging immediately after the clerical, ruling and military professions), withstood many turbulences and assaults, but it persevered, survived and developed. The number of customs officers and customs houses reflects the greatness of a state. And there lies also the greatness of the customs profession.” 


Part 1:Customs duty where did it come from?

New HMRC Penalties for VAT and Excise

HMRC are introducing new penalties to help prevent abuse in the VAT and Excise tax systems. From 1 April 2010 HMRC will apply new wrongdoing penalties where a person...

Read more about New HMRC Penalties for VAT and Excise