Call of duty: has your business overpaid import taxes in the wake of Brexit?

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Since Brexit, many fashion indies ordering collections directly from Europe have been overpaying duties and import taxes. Here’s how to find out if you’re owed money and claim it back. By Sam Ballard Robinson

The aftermath of Brexit has been a real headache for fashion indies importing products from Europe. Not only is there much more paperwork to fill out, there’s also additional customs duties and border taxes to pay.

But worst of all, many fashion indies sourcing collections directly from brands in countries such as Paris, Italy and Denmark have been overpaying. HMRC estimates there was at least £750 million overpaid customs duty and import VAT in 2020 alone. Some fashion indies have paid thousands of pounds more than what they were obligated to when importing European stock.

The good news is businesses can claim it back. Retailers in the UK can reclaim overpaid duties and import VAT for up to three years after they’ve received the goods. So, this is a huge area of hidden cost for some fashion indies and a great opportunity to claw back some lost margin.

As a director for a customs and global trade advisory specialist, I help fashion indie owners navigate the Brexit process. My company provides clear advice on making overseas purchases, handling suppliers, agents and hauliers, and how to manage border taxes from HMRC.

Why it’s happening

Boutique owners have told me they’ve found their relationships with Fast Parcel Operators (FPOs) such as DPD, DHL and UPS become more difficult over the last two years. FPOs have often misinterpreted their contractual agreement as getting goods from A to B as quickly as possible rather than considering cost. This has led to FPO customs agents clearing goods with incorrect forms, resulting in inflated border taxes for retailers.  

Some indie retailers have received swollen and ambiguous invoices from FPOs. Perhaps you’ve even had an argument with a delivery driver when demands for payment have been made before taking receipt of the goods?  

Over the past two years, we’ve clearly seen a significant increase in the overpayment of customs duties. Based on our own client data, almost 14 per cent of all consignments have a customs duty overpayment. One small Yorkshire-based boutique we work with had overpaid duties worth £12,500 in FY21, alone.

Through extensive research with our clients, we’ve found that 94 per cent of traders have likely overpaid customs duties and import VAT between 2020 and 2022.

Even HMRC is aware there’s a significant overpayment problem. In an ONS publication from Summer 2022, the organisation estimated they’d received almost £750 million more than expected in border taxes in 2021.

Why is this happening? Many of the instances of overpaid duties are caused by one, or a combination, of factors. It could be time pressure on clearing and customs agents as well as hauliers and couriers. Or perhaps some agents are inexperienced and are making human errors or overseas suppliers don’t have a good enough understanding of the process. Because the new Free Trade Agreement came into force relatively quickly, it’s taken a while to iron out issues and for the system to catch up. 

Faced with significant challenges during the pandemic and new Brexit import procedures, it’s not been possible for some FPOs to wait for the correct supporting documentation. Many haven’t been able to pursue responses to the nature of an import or its intended use. Instead, FPOs have cleared goods at the highest rate of border tax, allowing them to ensure warehouses did not fill with goods without customs clearance. All goods reached their end client in good time. But that often came with a greater economic cost for the receiver.

To compound the logistical challenges, FPOs relationship with HMRC clouds the picture. Border taxes can include customs duty, excise duty and import VAT. If these charges are payable, the FPO collects this fee on behalf of HMRC and the Border Force. The FPO then will then add this charge plus their own handling fees to a commercial invoice.

Where I have seen the greatest stress and lost effort for retailers has been in fighting for responses or reimbursements from FPOs. Unfortunately, if you feel you have overpaid border taxes, you need to go straight to HMRC. 

Have you overpaid?

There’s really only one way to find out if your business has overpaid customs duties and import VAT since Brexit – and that’s to request your MSS Data from HMRC. MSS Data is a log of all import declarations made on your business’s behalf throughout the UK and is key to understanding your border tax exposure.

By analysing a matrix of product, origin, dispatch, value and tax in an MSS data report, retailers can understand the border taxes paid against the border taxes that were actually due.

Unfortunately, tax authorities administer complex processes for customs duty and import VAT reclaims. However, retailers can process MSS Data with support online via gov.uk.

Similarly, there are a number of tools on the market that can support this task. But for many retailers, the administrative time burden of navigating the duty reclaim process does not result in a good return on investment.

That’s where our Duty Management Tool (DMT) comes in (see more here). It can quickly establish your border tax over-exposure in minutes and begin the automated duty reclaim process on your behalf.

How does it work? Falsum requests the MSS Data on your behalf and pays HMRC directly for access. The Duty Management Tool runs a fully automated customs duty analysis and notifies us of any overpayments. This managed service means you can focus on your business while we find out if you’re owed money.

It’s a gamechanger for indie retailers importing directly from brands in Europe and further afield, too. Of course, boutique owners can also help themselves moving forward by requesting MSS Data from HMRC either monthly or periodically to keep a regular check on overpayments. You can also ensure suppliers are generating the correct documents pre-export to try and minimise the risk of paying too much tax for their goods.

Brexit has generated so much more work and inconvenience for some independent fashion retailers. But with Falsum’s Duty Management Too,l it’s possible to claim back what you’re owed without getting your head around even more paperwork.

Sam Ballard Robinson is director at Falsum, a UK-based customs and global trade advisory specialist. Visit falsum.co.uk/services/analytics/duty-management-tool to find out more.