Managing the cost of making customs declarations: are software solutions the future?
Photo by Elson Liu on Unsplash
How much does it cost?
When goods cross a border, customs formalities must be completed. Customs brokers help businesses complete these formalities. In the UK, £32.50 per declaration is HMRC’s estimated cost of this service, but in reality the price tag can be as high as £150 per declaration. For businesses trading between the UK and the EU, this is an additional cost of Brexit.
Unlike customs duties, this cost cannot be reduced by using the EU–UK Trade and Cooperation Agreement. Many businesses are considering completing customs declarations in-house with the help of software solutions. But is this the right option for everyone?
Top 5 reasons why software solutions are an attractive alternative
Using a software solution might be cheaper than paying a customs broker, but the cost-benefit assessment can be complex to calculate. The cost of software solutions depends on many factors, such as the number of declarations made per year, number of users, capability of the solution to interface with existing ERP system, etc. The pricing model varies vastly depending on the software supplier. As such, a cost vs benefit analysis is not straightforward to complete.
Most customs brokers in the UK act as direct representatives. This means they follow the instructions of the business on what should be declared on the customs declaration. Using a software solution would allow a business to bypass the messenger and submit the data directly to HMRC. This gives the business full control over what is declared to HMRC.
However, control comes with responsibilities. Businesses need the knowledge to declare their goods to HMRC accurately. Having robust internal processes and controls to manage the responsibilities of a customs declarant will help.
Data is power. Using a software solution to make customs declarations can offer better visibility in real time on what is being declared and what the associated costs are. Mistakes can be spotted and corrected in a timely manner, savings opportunities can also be identified. However, the business has to be self-sufficient as they no longer have the support of a customs broker who is often performing their own due diligence on the data you provide and acting as an extra safety net before declaring your goods to HMRC.
Software solutions can be used to automate processes to significantly reduce time spent on tracking the flow of goods and documents. This is particularly helpful for businesses that are using customs special procedures. Using a software solution often means the business can take advantage of some of the additional useful modules, personalising preferences to suit the business needs. For example, combining the filing of customs declarations in-house with managing customs special procedures can improve efficiency and compliance.
#5 Customs Declaration Service (CDS)
It is anticipated that CDS will be more user-friendly and could potentially reduce the cost that is currently paid to Community Systems Providers (CSPs).
Unlike in some EU Member States, although a declarant does not need authorization in the UK, the complex commercial set-up in the UK can be a barrier to bringing customs fully in-house. The introduction of CDS has the potential to change this.
What to consider before saying goodbye to your customs broker
For some businesses, the struggle to find a customs broker in the first instance may have forced them to make their own declaration using software from the start of 2021. However, for businesses with a choice, choose wisely.
- Understand that software solutions are tools with limitations. The user must have sufficient customs knowledge to be able to handle customs formalities in-house. The Incoterms rules agreed with customers/ suppliers could also restrict the option to bring customs clearance in-house. Furthermore, for businesses moving a wide range of goods, the expertise required to complete customs declarations should not be underestimated. The business must invest in training throughout the company and not just consider it as a single person's role. The customs brokers have insurance covering client losses due to mistakes made when customs declarations are submitted. This type of insurance is not available to businesses. Customs training is essential.
- Once a software solution is implemented, there is still a need for ongoing support beyond what the software developer can provide. As such, there is a need for the businesses to establish a good working relationship with customs advisors, to stay on top of not just updates relating to the declaration system, but also customs technical updates. In other words, by bringing customs activities in-house, the business is also inheriting the responsibility to stay up to date with HMRC policy and technical guidance. Learning how to do a customs declaration is an evolving process and is a skill that has to be maintained.
Software solutions may be an attractive alternative, but they will not replace customs brokers overnight. Nevertheless, businesses with a particular profile could be missing out if they are not at least contemplating this option.