What are the consequences of misclassification?

A common misconception is that misclassifying products with inaccurate tariff codes has minimal consequences.

In reality, using incorrect codes can lead to customs delays, fines, or even legal action. Take the recent tribunal case between HMRC and Star Images Enterprises where Star Images Enterprises found itself facing two C18 Post Clearance Demand Notices from HMRC for the underpayment of Customs Duty and Import Tax. This is a stark reminder of the importance of human expertise and interpretation in classification.

It’s crucial for businesses to prioritise the correct classification of goods to avoid these types of potential complications and financial risk. That’s where our TariffTel platform comes in to support businesses in accurate and compliant classification for even the most complex of products, supported by the guidance of our customs experts.

Here we look at the unexpected consequences of misclassifying goods and the repercussions it can have across a business if you’re found to be non-compliant by the government.

Repaying underpayments of duty

Underpayments of duty can lead to businesses having to repay the shortfall that should have been initially paid to customs authorities. This is often a meticulous and complex procedure that includes a thorough review of the misclassified products and the subsequent calculation of the correct tariff codes and associated duties, taking up both time and resource from elsewhere in the business. The financial impact of repaying underpayments extends beyond the actual duty amount. There are additional costs associated with conducting internal audits, hiring customs experts or consultants to rectify the misclassification, and possibly engaging legal support to navigate the complex regulatory landscape.

Associated fines with noncompliance

Customs authorities take tariff code accuracy seriously, and any errors can result in penalties that can put strain on a company’s financial resources. These fines are not just nominal; they can escalate rapidly, especially if the misclassification is considered a deliberate attempt to evade duties.

Potential loss of Authorised Economic Operator (AEO) status

AEO status is a coveted designation that provides companies with various benefits, including simplified customs procedures and reduced scrutiny. Losing this status could result in increased administrative burdens, longer processing times, and additional costs associated with adhering to standard customs procedures.

Further audits to ensure future compliance

Following a misclassification of goods, businesses may find themselves subjected to further audits by government authorities to ensure future compliance with customs regulations. This means that customs authorities scrutinise a company’s import and export activities in-depth, aiming to identify any potential irregularities, errors, or intentional noncompliance. These audits typically involve a meticulous examination of the company’s documentation, including customs declarations, invoices, and other relevant records. The impact of these audits is significant. The company may incur additional costs associated with the preparation of documentation, engagement of specialised consultants, and potential legal expenses to navigate the audit process.

Damage to company reputation

Repeated instances of noncompliance may lead to a damaged reputation within the industry. Customers, partners, and stakeholders may view the company with increased scepticism, potentially affecting its competitiveness and market position. The repercussions extend beyond the immediate financial and operational challenges, and can impact the long-term viability and sustainability of a business.

TariffTel’s combination of advanced customs data and our unrivalled team expertise create a precision solution for every business prioritising trade efficiency and growth.

If you want to find out more about a tariff code solution that’s right for your business or want to learn how your business could benefit from TariffTel, get in touch with our team.