Why are steel importers facing retrospective duty claims – and what can they do about it?

Issues with a post-Brexit customs system that took place more than two years ago could see steel importers face retrospective duty claims in excess of £25m. Here, we explore the legal routes available to those affected.

What is the duty for steel imports?

In 2018, the European Commission introduced safeguarding measures that imposed a customs duty of 25% on the import of certain steel products. This was, according to a UK Steel Safeguards Research Briefing published on 2 August, in response to a US tariff increase on steel and aluminium imports.

That same year, the UK introduced the Taxation (Cross-border Trade) Act 2018 (‘the 2018 Act’). This established a standalone customs regime to ensure that VAT and excise legislation would operate effectively after Brexit.

Following the transition period, the UK also chose to extend the steel safeguard measures that were initially imposed by the European Commission.

Under the Customs (Tariff Quotas) (EU Exit) Regulations 2020 (‘the 2020 Regulations’), importers could benefit from a nil rate of duty, rather than a 25% duty, if they entered an appropriate tariff quota number in their Customs Import Declaration.

The 25% duty – or safeguard – was due if the import was ineligible for the quota, the quota was not claimed properly, or the quota itself was exhausted.

What went wrong?

In 2021, customs agents encountered error codes whilst trying to clear goods that were subject to the 25% safeguard duty. As a result, they could not input the quota required to suppress the duty into the Customs Import Declaration.

Customs agents then had two options: use an override code, or delay making the customs declaration for up to six months.

Although the latter was feasible in certain circumstances, according to government guidance, many chose the override option, continuing to complete the Customs Import Declarations at the time of entry with an override code, until the error code was resolved in January 2022.

The problem was that duty override codes are usually used for claiming suspension of customs duty when importing goods from exempt countries.

As such, HMRC classed their use in a Customs Import Declaration as an invalid application for a tariff quota. Suspended import duties therefore became payable under the 2018 Act.

How has the industry reacted?

According to the British Stainless Steel Association (BSSA), HMRC is now contacting companies with demands for both the 25% safeguard duty and import VAT, in some cases almost three years after the clearance of steel imports that should have qualified for the nil duty rate.

Reports indicate that these retrospective duty claims total in excess of £25m, although estimates by the National Association of Steel Service Centres (NASS) place this figure at closer to £41m.

In a letter to HMRC and Parliament, the BSSA, NASS, and ISTA (International Steel Trade Association) have stated that “this is not a case of industry-wide ignorance or error, but rather a result of HMRC systems issues and unclear, inconsistent guidance, exacerbated by post-Brexit complexities.”

Technical issues with both the Customs Handling of Import and Export Freight (CHIEF) system and the Customs Declaration Service (CDS) have also been criticised.

Can steel importers seek legal redress?

Some steel importers are currently considering a group action against HMRC, with various industry bodies “still hopeful that something can be done.”

It may also be possible, however, to claim against customs agents for breach of contract and/ or professional negligence if those agents used the ineligible override code and failed to correct this in a post-clearance claim.

Indeed, information issued by HMRC in September 2021 indicated that customs agents could still make post-clearance claims to quotas by correcting an erroneously used duty override code and submitting a post-clearance amendment quota claim to the National Duty Repayment Centre, although such claims would be subject to quota availability and be allocated on a “first come, first served” basis.

Breach of contract and professional negligence claims could also be available for steel importers that have already paid any duty and VAT.

What should steel importers do next?

For breach of contract claims, steel importers should consider the contract’s scope and whether the customs agent’s terms and conditions were incorporated successfully into the contract for services.

Most contracts for the provision of services made in the course of business contain an implied term requiring the person who provides a service to exercise reasonable care and skill, pursuant to Section 13 of the Supply of Goods and Services Act 1982. Specialised skills can raise the standard required, as can any applicable professional standards.

It may also be possible to claim in tort for professional negligence. This holds the professional liable for breaching a duty of care that they demonstrably owed, primarily by acting below the standard of care expected of a reasonable professional in their field. This breach will have also directly caused a recognisable loss for the claimant.

Given that the strength of these claims will depend on various factors – including the scope of any contracts with customs agents, and whether the terms and conditions limit the agent’s liability for breach of contract or negligence – it is vital that any applicable contracts are thoroughly reviewed by a legal professional.

They will be able to identify whether any limitations breach the requirements of reasonableness as set out under the Unfair Contract Terms Act 1977 and help steel importers decide whether there is a reasonable chance of bringing a claim.