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HM Revenue & Customs clears most imported goods quickly, and processes for submitting customs declarations and payments for non-EU imports are straightforward, says a report out today from the National Audit Office. The rate of physical checks at the UK border is below the EU average, however, and the number of audits of traders has dropped substantially since 2005-06.

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Ninety-nine per cent of declarations are processed electronically and 90 per cent of goods are cleared immediately. The Department checks documents for about 6 per cent of imports each year and aims to clear 95 per cent of these within two hours. However, a recent quality review by the Department found an 18 per cent error rate in these checks.

The Department has only recently standardised the reporting of physical checks, and these reports suggest that between 2 and 3 per cent of imports get checked. The EU average is 9 per cent, but practices vary across the EU. Additional checks are undertaken and irregularities identified but not reported. The Department needs to improve its reporting, develop a standard for the minimum level of checking and undertake testing to understand compliance levels.

Ninety-seven per cent of goods examined are selected using cargo information and 3 per cent using the Department’s main trade system. The number of examinations as a percentage of imports selected from the Department’s trade system has fallen from 0.3 per cent in 2003-04 to 0.1 per cent in 2007-08.

But these examinations have a significantly higher rate of identifying irregularities than those selected from cargo information.

Audits of traders fell by half for large businesses and two-fifths for small and medium businesses between 2005-06 and 2007-08. The chance of a trader receiving an audit fell from 18 per cent to under 10 per cent. The additional revenue from this compliance work is reducing while the level of errors detected is rising, particularly among new traders. For small and medium sized businesses, the level of errors detected has increased from 32 to 39 per cent.

The fragmented management of customs activities within the Department, a lack of clear accountability, and incomplete management information have hindered effective oversight of its performance and risk management.

"HMRC has made it easier to import goods into the UK. The lack of information on compliance levels and the declining number of trader audits does however risk diluting the control the Department has over imports. It needs to develop ‘minimum’ levels for checks and trader audits, so that importers pay the right amount of tax and duty, and fully comply with the laws on prohibited and restricted goods."

Tim Burr, head of the National Audit Office


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