Non-compliance – ignorance or apathy? - International Trade Matters Ltd

As International Trade specialists, we are often called upon to help businesses meet their compliance obligations.

Far too frequently, this is after an enquiry or audit from a regulator, typically HMRC. It’s rare to work with a business that doesn’t understand they have compliance obligations as an exporter and/or importer. Frankly, they don’t come to us for help if they are totally unaware that anything is needed. It is, however, very common to meet a business that isn’t meeting their obligations. They are often prompted to take action when questioned and always motivated to take action when there is a nasty financial cost in the form of unpaid duty and taxes, and potentially a fine or penalty.

Be Proactive

Why didn’t they take action before? As I say, it’s rarely because no one knew they had obligations. Generally, it’s because the right person didn’t know or it was too far down the “to do” list. And the cost of this delay can be significant. To give a very simple and common example, if you don’t meet HMRC’s requirements for proof of export, you may be called upon to pay the VAT that you didn’t charge on a sale and now can’t substantiate. If your goods were worth £5,000, that’s a payment to HMRC of £1,000 and you can do the maths that shows it would be £10,000 on a sales invoice for £50,000. And that’s just one invoice – add up all your export sales invoice for a month – 20% of that as a fine would definitely hurt.

Ignorance

It’s rather rude to describe businesses as ignorant isn’t it! And, in my experience, they are generally not. But knowledge might not exist in the right places. Perhaps the export administrator, having attended courses paid for by their management team, understands what is needed and knows the actions to take. But the very same management team who paid for the training aren’t aware of what’s required, and don’t take the time to listen to what’s been learned by their teams. I often find myself encouraging the people I meet to put a plan in place and seek approval from their management for action. A rather extreme example I can think of is a person I trained who subsequently told me she’d sent numerous emails to her manager about a particular compliance issue only to be told it didn’t matter. She told me that she sleeps well at night and has kept the evidence that she’d alerted the right people! This is extremely disappointing and thankfully it’s rare. Most managers do seem to take notice, but then apathy sets in.

Apathy

Most of us have “to do” lists that are longer than the time available. Many of us have learned about prioritisation and understanding the difference between tasks that are important and tasks that are urgent. Take a look at the Eisenhower Matrix for a proper explanation of this method of prioritisation. The “urgent and important” tasks tend to get done but the “important” tasks are typically not the first priority. In fact, this is a wonderful example of the matrix in action. There’s nothing like an email from HMRC to bump something up from “important” to “urgent and important”!

Assuming that most businesses aren’t ignorant and that the knowledge exists in the right places, how do we get compliance higher on the priority list? Like any other task, we get it done by measuring it and by allocating resources. Businesses must measure and track the way they meet their compliance obligations for their exports and imports. This is so they can be prepared for the HMRC email when it arrives and, frankly, so that those in charge can sleep soundly at night. When something is measured and tracked, it’s often remarkable how quickly it becomes a priority.

Then it quickly emerges when folks don’t have the time available. Choices need to be made about whether to drop something in favour of the newly prioritised task or add more resource. The key is understanding the importance of the task and setting an appropriate priority that gets it done. Take my word for it – the task is extremely important. Just the example above which could lead to a demand for of 20% your export sales should help bump this up the list.

Don’t wait for an email or letter from HMRC. I will steal a quote from someone I met at an event. My apologies to the person because I can’t remember his name, but his words were very wise;