SAO: A Cautionary Tale
December 02, 2019
HMRC have invested in resources to increase audit enquiries and increase scrutiny in relation to Senior Accounting Officer (SAO) and approval requests for Authorised Economic Operator and Customs Warehousing. Consequently we consider that there remains a significant unmitigated risk for a large number of businesses when SAOs sign-off in relation to having appropriate customs duty accounting procedures on the basis of having a 3rd party customs broker fulfil their customs obligations.
Our team’s historic experience and recent reviews on Brexit readiness, has highlighted the continued misbelief that, in outsourcing the completion of customs declarations to a 3rd party customs broker, businesses simultaneously outsource tax compliance and more specifically their SAO risk. This is quite a dangerous position to take without having in place the supporting documented processes, procedures and controls to enable review of the data submitted by the 3rd party customs broker and just as importantly the support of an audit trail to prove it.
A further consideration is the newly published Business Risk Review plus (BRR+) guidance from HMRC. One of the low risk indicators listed by HMRC, focuses specifically on “key fiscal areas that are outsourced”. In order to be assessed as low risk, business must be able to demonstrate how outsourced services are effectively monitored and managed.
A recent wake up call
Recently, a business received a routine email enquiry from HMRC relating to a shipment of imported goods. They had been asked to check and confirm the customs data that they had declared for their goods on their import declaration. Unfortunately, the customs broker had made errors leading to a seven figure assessment for customs duty owed over a historic three year period to HMRC. The SAO had relied on the verbal assurance of the inhouse logistics team, who advised the business had appropriate compliance procedures and controls in place. As it transpired, when audited they did not have adequate written procedures, nor did they have a process for regularly checking the data submitted on their behalf and when they did ask for an occasional correction via their 3rd Party Broker, they had no audit trail in place. HMRC is now deciding whether there has been an SAO breach and is keen to pursue penalties.
How can this be avoided
We recommend that businesses undertake a detailed Customs Focussed SAO risk review. Our specialist team at PwC can provide an independent assessment providing a graded risk report with recommendations, encompassing the appropriateness of how your business meets its SAO obligations in respect of:
1. supporting the basic customs tenets of classification, valuation and origin;
2. whether the business’ use of customs duty reliefs is appropriate and as per the relevant authorisation i.e. customs warehousing, Inward Processing, Sample Goods relief etc;
3. deferment and payment of import duties;
4. whether there are adequate written procedures for the above;
5. having an appropriate Service Level Agreement (SLA) in place with your 3rd Party Customs Broker; and
6. a documented Audit process for the data submitted on your behalf by your 3rd Party Customs Broker, including corrections of customs declarations, where relevant..
In conclusion, if a business is within the SAO regime and has a customs duty profile, such a review would be advisable. This would provide an SAO with the comfort that an independent analysis of their procedures has been conducted which should give them peace of mind and help to facilitate protection from SAO penalties.
Please discuss with your usual PwC contact or alternatively, please feel free to email Matthew directly at [email protected]