When Customs Disagrees with Your Valuation: Lessons from a Multi-Million-Pound HMRC Dispute
Contents:
A Summary of the Dispute
Four UK-based importers were bringing in a high volume of consignments from outside of the EU. One of these companies alone imported 3,375 consignments totalling 39.5 million kilograms over approximately 27 months.
HMRC launched a valuation audit covering goods imported from October 2015 onwards, and concluded that the prices declared during customs clearance did not reflect the “true economic value” of the goods.
Furthermore, many of the recorded sales claimed Onward Supply Relief – where goods sold to another Member State are sold without VAT applied – but there was insufficient evidence that the importer had taken title of the goods before the sale had taken place.
The review also included related companies sharing the same director, after which a multi-year dispute followed. This focused on whether HMRC had “reasonable doubt” about the declared values and whether the transaction valuation method should be rejected in favour of alternative valuation techniques.
Due to gaps in documentation and the inability to address HMRC’s concerns, the declared transaction values were rejected.
HMRC then recalculated the import duty and VAT due on the goods, resulting in a post-clearance demand note for almost £8 million in assessments across the four businesses.
Why HMRC Had Doubts and the Tribunal’s Ruling
HMRC’s investigation was based on three core issues:
1. Insufficient or Inconsistent Documentation
- The invoices supplied by the importer often did not have the full details
- There was no recorded justification for fluctuations in price
- There was limited evidence for how the values were determined
2. Overlapping Personnel, Functions, and Suppliers
Although there was no formal relationship between the four companies, HMRC identified that they shared a director, undertook similar operations, and had transactions with some of the same suppliers. This created a basis for expanding the audit to include the four entities.
3. Insufficient Evidence of Pricing or Transport Contracts
When asked, the companies could not provide:
- Pricing policies or supplier breakdowns
- Contracts explaining how prices were set
- Freight and insurance evidence
Tribunal conclusion
The tribunal ruled that HMRC did have “reasonable doubt” and that rejecting the declared values was justified.
As a result, the reassessed values and associated tax demands stood.
The tribunal also upheld HMRC’s refusal of Onward Supply VAT relief, citing lack of evidence for immediate onward sale and that the importer had taken title beforehand.
How This Affected the Importers
HMRC issued C18 post-clearance demand notices totalling nearly £8 million:
- Importer A: £4.14 million
- Importer B: £1.90 million
- Importer C: £1.31 million
- Importer D: £0.52 million
Total customs duty: ~£1.9m
Total import VAT: ~£6m
Total demand: ~£7.9m
Apart from the immediate cash-flow and overall profit implications, this ruling had other consequences for the importers and the director:
Operational and Compliance Consequences
- Heightened HMRC scrutiny, meaning more audits
- Delays in customs clearance due to more inspections
Reputational Risk
Tribunal records for companies and their directors are publicly accessible, creating implications for future banking, supplier negotiations, and trade finance assessments.
Key Lessons for Chief Financial and Chief Procurement Officers
Keep a Defensible Database
You must be able to demonstrate:
- How the prices were agreed
- Why the prices are commercially reasonable
- That the freight, insurance, and other costs are included as appropriate for your Incoterm.
Even if you have all the documents for your import clearance, the authorities can reject the transaction value if there is no evidence of the prices paid and terms.
Ensure You Keep a Complete Database of Supplier Documentation
The liability for import documentation rests with you as the importer.
Your procurement team should:
- Build customs-compliance clauses into supply contracts
- Require structured pricing justification
- Vet suppliers for documentation readiness
In general, you should avoid suppliers who are unable to support valuation claims. A good deal may not be a good deal in the long term.
Understand that Onward Supply Relief is Not Automatic (EU and NI only)
To claim VAT relief, you must hold:
- Proof of immediate onward sale
- Buyer VAT validation
- Transport/export documentation
Omission of any of these can invalidate relief entirely.
The Authorities Can Revisit Years of Trade Activity
This case demonstrates how HMRC and other authorities can assess multiple years retrospectively when valuation is questioned.
When assessing compliance, CFOs should model the risk for multi-year exposure and the cashflow implications of retrospective duties and VAT. Across thousands of consignments, even small under valuations can compound into multi-million-pound liabilities.
If there is any doubt, then you can seek Binding Valuation Information to give you peace of mind.
Align Transfer Valuation with Arm’s-Length Valuation for Customs
Transfer pricing documentation alone is rarely sufficient during a customs audit. Customs valuation requires:
- Demonstration of arm’s-length pricing
- Disclosure of rebates, credits, commissions
- Evidence of how prices were determined at the time of import
Customs and finance teams must share information to avoid mismatches.
Protect Your Business with Customs Support Group
CSG helps businesses build robust compliance systems so that you can protect your margins, operations, and reputation.
Our experts provide:
- Valuation Audits: Independent review of declared values and supporting evidence.
- Compliance Vetting: Check your suppliers’ documentation meets the required standards.
- OSR Guidance: Build systems so that your VAT relief claims will hold up under scrutiny.
- Customs Health Checks: Identify risks before they become costly liabilities.
- Customs Consulting: Build repeatable, audit-ready processes across your supply chain.
Contact us today to get started.
*This article summarises a publicly available tribunal [2025] UKFTT 1335 (TC) (11 November 2025)
