Public accounts committee criticises “poor” HMRC customs operations

A committee of MPs has said that HM Revenue and Customs’ management of customs activities is fragmented and disjointed, accountabilities are blurred and management information is poor.

The Public Accounts Committee said the situation has been complicated by the involvement since April 2008 of the UK Border Agency.

HMRC is responsible for enforcing import controls to ensure that traders bringing goods into the country from outside the EU pay the right amount of duty and tax and that the UK’s borders are proof against the smuggling of prohibited and restricted goods.

The PAC took evidence from HM Revenue & Customs, examined helping traders to comply with customs rules, controlling imports into the UK, the organisation and management of customs activities, and identifying risks and gathering intelligence.

PAC chair Edward Leigh said:

“HMRC has tried to speed up the process of clearing imports at ports by shifting the emphasis from physical examinations to documentary checks and audits of traders. In practice this has led to an erosion of control.

“Against an increasing number of imports, the department is carrying out a lot fewer documentary checks and trader audits – and detected non-compliance is increasing.

“HMRC has argued that an approach based on assessing risk and managing intelligence justified the relatively low levels of physical examination.

“The trouble is that HMRC and the UK Border Agency have lacked robust processes to identify new and emerging risks.

“This is a weakness that both bodies must address in a concerted way.”

In 2007-08, HM Revenue & Customs (the Department) processed 22 million import declarations from 16,000 traders, accounting for more than £186 billion of goods imported from outside the EU.

It collected £2.5 billion in Customs Duty and £19.3 billion in Import VAT.

It is responsible for enforcing controls over imports to collect revenue and protect the United Kingdom from social and physical threats, such as drugs and firearms, whilst making it quick and easy to import legitimate goods.

Submitting import declarations and paying duty are relatively straightforward.

99% of declarations are submitted electronically and the Department clears around 90% of imports without further check beyond its initial system scrutiny.

Customs rules are set by the EU and are complex, with 34 categories of prohibited and restricted goods, 30 different regimes that traders can use to reduce or defer payment of duty, and 16,000 different goods classifications that define the level of duty payable and any restrictions.

The Department provides services to help traders navigate the rules and procedures, but traders find it difficult to comply, and simple errors can lead to demands for large back duty payments.

The Department controls imports by undertaking documentary checks, physical checks at the frontier (the UK Border Agency took over responsibility for carrying out such checks in April 2008), and trader audits.

The Department has sought to limit the number of physical checks carried out at the border and shift controls to documentary checks and trader audits.

However, the number of documentary checks has fallen significantly even though the number of consignments has increased, and the rate of physical examinations of goods at the frontier was well below the EU average of 9%.

The number of trader audits also halved between 2005-06 to 2007-08, leading to reduced revenue from this work, while levels of non-compliance detected increased, particularly among new traders.

The Department’s management of customs work and risk assessment is spread across eight directorates and, since April 2008, the UK Border Agency.

Poor management information has hindered effective oversight of performance and risk management.

In 2007, the Department established the Customs Strategy Delivery Group to improve its strategic and operational management of customs activities.