Committee of Public Accounts: Press Notice

HMRC: THE CONTROL AND FACILITATION OF IMPORTS

Publication of the Committee's 38th Report, Session 2008-09

Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:

"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 our borders are proof against the smuggling of prohibited and restricted goods, such as drugs and guns.

"So it is far from reassuring to learn that the department's management of customs activities is fragmented and disjointed, that accountabilities are blurred and that management information is poor. This situation has been made even more complicated by the involvement since April 2008 of the UK Border Agency.

"Direct comparisons are difficult but it does look as if the rate at which physical examinations of consignments are carried out at the UK border - some 2 to 3 per cent of imports are physically checked - compares unfavourably with the EU average of 9 per cent.

"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."

Mr Leigh was speaking as the Committee published its 38th Report of this Session which, on the basis of 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.

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