Brexit raises risks for new HMRC customs system

NAO report says HMRC is making progress with new Customs Declaration System, but that uncertainties around future customs arrangements are creating major problems

HM Revenue & Customs (HMRC) is in a race against time to deploy the Customs Declaration Service (CDS) before the UK leaves the EU – with significant risks if it fails.

Dover port from the airThe National Audit Office (NAO) has published a report on the programme that says the department has been making progress with the programme, but that the vote to leave the EU has shortened the timetable and created some big uncertainties around what the new system will need to do.

The programme was launched in 2013-14 when the department decided it would be too expensive to update its ageing CHIEF system (Customs Handling of Import and Export Freight). It laid plans to develop the CDS to handle all customs declarations from January 2019.

But the vote to leave the EU has moved the goalposts. The UK is now on course to leave the Union in March 2019, and it is unlikely to be clear for some time how its customs arrangements with the member states will change. There have also been estimates that, with the plan to leave the customs union, the number of declarations could increase from around 55 million to 255 million per year.

The risk is compounded by the fact that if CDS is not ready in time, CHIEF is only capable of handling up to 100 million declarations per year.

Positive signs

The report says that HMRC has made progress in designing and developing the CDS, with an updated business case and deals with major suppliers. It has also designed the overall service model and shared technical specifications with software suppliers and intermediaries.

But there is still a significant amount of work to do, hindered by the fact that there have been staff vacancies on the programme and the uncertainties around what exactly will be required of the system.

In addition, HMRC’s plans to ensure traders are ready to use the new system are not yet fully developed.

There is also a narrow window for delays between the planned implementation date of January 2019 and the Brexit date of March 2019.

In response, HMRC has identified contingency options, but has not yet planned these in detail.

Cost decisions

The report says it is not reasonable to expect the department to develop all the options by itself, and that it needs support from around government. This will involve decisions on whether any extra costs linked to having a suitable system in place by early 2019 are worth paying.

Amyas Morse, head of the National Audit Office, said: “HMRC has made progress in developing the new customs system, which was part of its existing programme, but it may need to be ready much earlier than originally planned if there is no agreement extending timescales on the transition to any new customs arrangements.

“Customs problems have obvious implications for the flow of goods in and out of the UK, so government as a whole needs to decide whether the extra cost and effort of getting a working system in place for day one is an insurance premium worth paying.”

The importance of the system is demonstrated by the fact that HMRC collects about £34 billion in customs and excise duty and value added tax at the border each year.

The issue has already caused disquiet in Parliament. In April the Treasury Committee wrote to the director general of transformation at HMRC, Nick Lodge, warning of its “critical importance”.

Image, Dover Ferry Port from John Fielding, CC BY 2.0 through flickr