Customs Agents: Why the Roseline case is a cautionary tale you can’t ignore
The recent Roseline Logistics Ltd1 (Roseline) case has sent ripples through the customs and freight forwarding industry. It serves as a critical reminder that anyone involved in satisfying customs obligations can be held jointly and severally liable for import VAT and import duty if they are involved in a breach of a relevant customs obligation — and knew, or ought reasonably to have known, of the breach.
While the Roseline case highlights that the liability for import VAT and import duty may transfer to an agent, importers and exporters can also be held jointly and severally liable. The appointment of a customs agent does not discharge a business from its compliance responsibilities, HMRC will expect importers and exporters to be able to justify the information appearing on their customs declarations.
Direct vs Indirect Agent
Broadly, customs agents can be authorised by the importer in one of two ways:
- As a direct agent, submitting custom declarations in the name of the importer; or
- As an indirect agent, submitting custom declarations in their own name on the importer’s behalf.
Many agents feel more secure acting as a direct agent — and there’s good reason for that. In general, it means the liability for import duty and import VAT sits with the importer, not the agent.
A warning to direct customs agents
There’s a widespread misconception in the customs and freight forwarding industry that acting as a direct agent offers complete protection from joint and several liability to import duty and import VAT. This is simply not true.
A direct agent must:
- Be properly appointed;
- Act within the scope of that authority;
- Ensure that they are not involved in a breach of a relevant customs obligation; and
- Ensure that declarations and special customs procedures are carried out in accordance with the regulations.
Otherwise, direct agents can also be held joint and severally liable to import duty and import VAT.
What happened in the Roseline case?
Roseline made import declarations claiming Postponed VAT Accounting (PVA) on the importer’s behalf. Roseline was instructed to make the PVA claims by an intermediary and had no direct contact with the importer.
PVA allows VAT-registered importers to account for import VAT through their VAT return rather than paying at the point of import. However, the importer in Roseline was not VAT-registered at the time, and thus not entitled to use PVA.
HMRC issued a post-clearance demand note to Roseline for £1.1 million in unpaid import VAT arising from the declarations.
The FTT determined Roseline was never appointed as the importer’s customs agent, and ought reasonably to have known of the breach:
- Roseline participated and was involved in the breach by making the PVA claims on the importer’s behalf.
- Roseline failed to carry out basic due diligence, such as checking the importer’s VAT registration or Companies House status. These were simple and routine steps that would have revealed the client’s ineligibility to use PVA.
Because Roseline skipped these checks, the FTT considered they ‘ought reasonably to have known’ that the declarations were incorrect. Roseline was held joint and severally liable for the full £1.1 million import VAT liability.
The FTT observed that even if Roseline had been properly appointed as a direct agent, it would still have been held jointly and severally liable. In addition to being involved in a breach of customs obligations, Roseline was not authorised to make the PVA claims in the declarations and would also have been held liable for purporting to act on behalf of the importer when it made those claims. Agents must ensure they have clear and valid authority to make any declarations—and any claims included in those declarations.
What can we learn from the Roseline case?
The decision of the FTT serves as an important reminder that any person, regardless of whether they are acting as a customs agent (direct or indirect) or not, can be held jointly and severally liable if the person participated in, or was otherwise involved in, a breach of a relevant customs obligation and knew, or ought reasonably to have known, of the breach.
It is essential that all persons ensure that they are not participating in a breach of a relevant customs obligations by carrying out reasonable checks. This duty applies even where an agent is authorised as a direct agent.
What should direct agents be doing?
If you’re a customs agent, the Roseline case should serve as a wake-up call to review your internal procedures:
- Ensure you satisfy yourself that you are not participating in (or involved with) breaches of relevant custom obligations by carrying out reasonable checks. This may include:
- Checking and verifying the importers VAT registration number, using HMRC’s Check a UK VAT number tool.
- Checking your client’s trading status.
- Carrying out basic checks, including checking the status of the company on Companies House.
- Carrying out proper due diligence before deciding to act for a client.
- Establish procedures to confirm that you are properly appointed as a direct agent and that the appointment process complies with regulatory requirements.
- Ensure your authorisation to file the customs declaration and make any claims is clear, current, and properly documented, and that there is a process in place for this to be regularly reviewed.
- If you’re instructed via intermediaries, ensure that you are satisfied that they have authority to appoint you as customs agent and you have authority to make declarations and any claims in those declarations.
- Keep full audit trails and records showing the checks you carried out and who you acted for.
This list is not exhaustive, and you should determine which checks are necessary before deciding to act or submit declarations for clients.
Other situations where joint and several liability may arise
While the Roseline case focuses on customs obligations, the principle of joint and several liability is not limited to customs legislation.
For example, HMRC can hold businesses jointly and severally liable for unpaid VAT in a supply chain. The measure applies to transactions that are subject to widespread VAT fraud. HMRC has the power to issue a notice where it considers that a business has failed to take reasonable steps to verify the integrity of its supply chain. Examples of indicators that should alert a business to risk in a supply chain are included in VAT Notice 726. Even if a business did not know of the risk, liability can still arise if it should have known.
Similarly, within the off-payroll working rules, parties involved in labour supply chains may also be jointly and severally liable in certain circumstances. For example, where one party has failed to withhold the correct amount of tax, liability can be transferred back up the chain to the end client or first agency involved. It’s therefore important that companies using agencies to supply labour do their due diligence.
These examples reinforce the wider lesson from Roseline: the importance of understanding your role, verifying your authority, and carrying out robust due diligence, failure to do so can result in costly and unexpected liabilities.