The European Commission is sending a legal notice to Britain for failing to contribute 2.7 billion euros ($A4.4 billion) in customs duties to the European Union, the commission says.
Britain has two months to act. If it does not, the Commission could refer the case to the EU's top court, the European Court of Justice.
The case could also further complicate Brexit negotiations as Britain pursues a future customs relationship with the EU after it departs.
The notice is the second step in infringement procedures that began in March. They started after the EU's anti-fraud agency found that British importers had evaded paying customs duties that were legally due to the EU. These goods were textiles and footwear that had originated from China, the commission said.
The anti-fraud office "found that importers in the United Kingdom evaded a large amount of customs duties by using fictitious and false invoices and incorrect customs value declarations at importation," the commission said in a statement.
"Despite having been asked to take appropriate risk control measures, the United Kingdom failed to take effective action to prevent the fraud," it added.
The 2.7 billion euros ($A4.4 billion) is the estimate of losses to the EU budget that resulted from this fraud. But there could be additional losses to the budget due to its impact on value added tax collection, the commission said.
Monday's announcement comes as tensions over Brexit are escalating. London has proposed a special customs deal in which Britain could still collect dues intended for the EU and then send them to Brussels.
The EU has countered that the collection of customs taxes should not be delegated to a third party, which Britain would be after it leaves the EU in March 2019.
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