Indirect representation a ticking timebomb
Is indirect representation a fool hardy way to handle UK customs brokerage. Certainly some freight companies seem to think so. The premise is simple and straight-forward.
Take instruction from the importer or exporter and operating under their instruction you are directly representing the importer. The reality is quite different. Freight forwarding companies in the UK are finding that HMRC’s interpretation is quite different. Freight forwarders are operating under indirect representation without realising it.
Shipping terms being used to import and export have changed dramatically. The buyer or the seller takes responsibility for the full supply chain. For the freight company this is an issue. More shipments move under either ex-works ( EXW ) or Delivered Duty Paid ( DDP ). Making the customs element fall under the freight forwarders responsibility. This is at odds with the incoterm due to the remote nature of the controlling party.
Why does the incoterm matter
Quite simply it dictates who is responsible for the customs entry on an import or export.
For an import under DDP customs clearance is handled by the seller. If not handled correctly this could leave HMRC with only the freight forwarder to chase for any customs liability.
An excellent example is a seller importing into a distribution centre. Goods are sold on to the general public with the controlling seller being overseas. Commonly referred to as an Ebay seller but this could be any number of generic website or marketplace seller. As the company is based overseas he could under declare for the purposes of the customs entry. Once importer he sells his goods at a much higher price. HMRC wishes to recover the duties & taxes they believe has been under-declared. They go after the freight forwarder to recover their money.
BIFA and overseas based importers
BIFA| ( British International Freight Association ) are extremely clear in how HMRC interpret the rules and this 2020 review is an excellent read . The paragraph you are looking for is : Liabilities when acting as Customs agent for a non-UK based entity. This discusses clause 20 of the BIFA terms but confirms that as contractual you may still have to go to court to recover any penalty from HMRC against the overseas company.
Common issues with Indirect representation
The most common problems reported to BIFA include :
- Misdeclaration of goods
- Under declaration of value
- Issue relating to rules of origin
- Other valuation issues
- Anti-Dumping duty infringements
As a freight forwarder these issues generally arise post clearance. This is likely to lead to the UK customs broker incurring administrative costs and debt liability. These will need to be paid to HMRC and then an attempt made to recover them from an overseas party.
As a freight forwarder you can see why Indirect representation and DDP movements may need a review. Securing that business may well cost you dear in the long run.
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