Monday, May 14, 2018

Road Haulage Operators and Freight Forwarding Agents Find More Work as Civil Servants

Society Increasingly Reliant on Private Companies to Police Themselves and Collect Revenue
Shipping News Feature
UK – Both the UK and Europe have been moving almost imperceptibly to become a working society in which a company is responsible for administrating not only its employees' behaviour, but that of its customers as well as its own, and being liable to penalties for failing to follow government guidelines when doing so. Many companies traditionally resent the fact that, not only do they have to collect carefully calculated amounts of tax, such as VAT, and hand it to central government, but stand to be heavily penalised should they make any honest mistakes in their calculations, whilst of course all the associated administrative costs are simply a drain on resources.

Now it seems it is the fashion for governments, the UK is a case in point, to cut the number of public employees to the bone but, to avoid any loss of revenue, pass on the mantle of responsibility to the companies concerned, and the transport and logistics sector it seems is a prime target. Two unconnected examples in the UK, aside from the fact they both now fall under the auspices of HM Revenue and Customs, give perfect illustrations of this.

In the first instance there is the case of ‘night out’ money, traditionally payable to lorry drivers who have to rest whilst away from home overnight. Payment for such inconveniences have always varied dependent on employer, driver and the circumstances of the job. As vehicle technology has evolved over the decades the sleeper cabs now fitted to trucks are dedicated to making life on the road as comfortable as possible.

Last year HMRC decided that any such payments are to be deemed as income as opposed to expenses, i.e. liable to tax as such. The road haulage lobby complained bitterly explaining that there is a small matter of subsistence, food being one of a number of essentials, personal hygiene, laundry and other costs perhaps, and even a bed for the night if they do not have a suitable cab. Now certain countries forbid taking the weekly 45 hour rest even in the most luxurious of cabs, and where does one sleep if parked in a major city awaiting delivery on the next working day?

Despite the complaint, the HMRC in its usual fashion, started to come up with complex solutions to resolve a problem that had never before seemed to exist. To ensure only genuine expenses are claimed, HMRC began insisting that a haulage operator must conduct ‘sample reviews’ without specifying how often. The advice given to hauliers has been inconsistent and includes such as this ‘…a driver selected for a sample review must satisfy you that they had been away from base on the night the claim relates and that they incurred the cost of food and drink. You need therefore to see evidence that a meal was bought which could be a receipt or, if not, then HMRC will accept a photo of the meal which shows a time and date’.

And this ’…the drivers are required to keep the evidence until you have reviewed the period to be reviewed. If the driver is selected for review then that evidence must be passed to you to check. You can either keep this evidence or prepare a spreadsheet showing who was selected for review and detail of the evidence they provided which states what you saw and the amount of the claim.’ All this to make sure that the driver is entitled to the huge sum of £26.20 per night (or £34.90 for drivers without sleeper cab) for all the costs incurred during a night away from home. So leave the real world, photograph your dinner and staple the picture to your spreadsheet - couldn’t be simpler.

Now this type of thinking, get a company to do the government required admin and penalise them if they don’t come up to scratch (scratch being arbitrarily decided post event) seems to be spreading faster than PFI as a cost control measure for the administration (and we know how well that’s working out). The next example is the government inspired wheeze to save an estimated £1.9 billion annually in lost VAT, uncannily close to the amount the UK is currently being fined by the EU after the HMRC has allegedly failed to collect correct duties and taxes on goods imported from outside the Community.

Not that €2 billion is the actual amount, the government itself puts the annual shortfall in VAT at £13.5 billion due to fraud, company liquidations when in debt to the Treasury, and simple bad management (presumably it means by the collectors i.e. the VAT registered companies, not its own staff). So how to mend that £1.9 billion hole in the accounts? The HMRC sees the new ‘Fulfilment House Due Diligence Scheme’ as the answer. Critics say this is more a case of ‘we can’t manage it, so you’ll have to and then we can claim the money from you if you are as bad at it as we were’.

The scheme means that unscrupulous exporters operating abroad who send goods to the UK, usually via internet sales who avoid duty and VAT payments are, from June 2019, to be held to account by the freight agents they appoint to handle their stock. We put the point to the HMRC representative who was outlining the scheme to us that what was envisaged, i.e. examining and taking responsibility for the actual goods, goes against the professional status which a freight forwarding agent traditionally holds.

The ‘Due Diligence’ effectively means that if a company imports goods as stock to be distributed by a UK agent, that agent needs to be registered as a Fulfilment House. Once registered the agent takes over all responsibility, and has to ensure not only that the goods are exactly as described on the import entry, but are of the precise nature and quality required and worth the correct declared value for duty and VAT purposes (and potentially safe to use and legally compliant).

These checks of course mean that it is necessary for the Fulfilment House not only to open some of the goods to physically check them (something which goes completely against all the principles of the forwarding trade), but ascertain the value and quality are exactly as described, plus keep a proper log detailing all his or her findings for HMRC to inspect at will.

As usual there is no direct reward for the agent in this from the authorities (whose job is now in the company’s remit), whilst there is a considerable potential for downside in the way of penalties (up to £20,000). When we put it to the relevant official that the items most likely to abuse VAT regulations were liable to be items such as mobile phones, tablets etc. and that, once the security sealed packages these are usually packed in were opened they became unsaleable, answer came there none, as was pointed out in an earlier article describing the regulations in full.

In the two instances quoted the relevant UK bodies who lobby on behalf of their respective sectors have been active in promoting their members causes. The Road Haulage Association (RHA) has consistently pressed for common sense over the night payments to drivers, rightly considering that there has been no evidence of widespread abuse, whilst elsewhere many feel much more serious practices avoiding tax have been bypassed without investigation or prevention.

In the case of Fulfilment Houses the British International Freight Association (BIFA) has been involved in the consultation process for approximately three years and feels that, with its input, the regulations as introduced are not as onerous as they might have been, the original proposals having been much more draconian.

BIFA’s Executive Director, Robert Windsor confirmed that there is a move in Europe intending to make the trader more responsible for their own activities and industry more self-policing, something BIFA has repeatedly outlined, in part through its published papers regarding Customs Representation which highlighted the situations where a forwarder acting on behalf of a party not established in the EU would in effect become fully responsible for all aspects of customs activity.

Robert Windsor points out that although the original intention of HMRC did not concern itself with product safety, the Department for Business, Energy and Industrial Strategy (BEIS) has been working on implementing a Product Safety Directive which, as it is applicable to the importer, would effectively render the Fulfilment House liable for all aspects of the supply of goods to the market including safety and product recall if necessary.

BIFA has ongoing meetings scheduled with both the BEIS and its legal teams and, despite the fact applications for Fulfilment House status are currently being processed, the final responsibilities of such a qualification remain unclear at present. Until the muddy waters of Brexit clear somewhat the actual effect of these regulations will be hard to gauge, as the EU status of goods imported from beyond the borders of the EU on which duty and VAT have been paid in the UK, remain impossible to determine at this time.

No matter how loud the complaints regarding the extra responsibilities, the matter of Fulfilment Houses requires a mind shift from the logistics community. Whatever Brexit brings, the role is not one of a traditional forwarder rather that of an agent with a vested interest in the actual import business itself. Those considering it simply as a useful add on to their existing trade should be aware that there are pitfalls regarding acting for foreign companies for which they have no full understanding of their status, history, morals and intent.