In a session before the Treasury Committee, HMRC chief told MPs that it had not calculated the administrative cost of the government’s Brexit deal on exporting businesses and that several thousand high value exporters were not even ready for a no-deal Brexit
When pressed by members of the Treasury Committee, HMRC said that it did not have detailed figures on the administrative costs of implementing the government’s Brexit deal for businesses as part of the Withdrawal Agreement Bill Impact Assessment.
Despite the fluidity of the various Brexit deals, Jim Harra, interim chief executive of HMRC, was put under pressure to provide details of actual costs to exporters and businesses.
Catherine McKinnell MP, interim chair of the Treasury Committee, said: ‘We have a rough idea of what a no deal arrangement would add in terms of cost to the economy. What we don’t know is how much these arrangements, that we’re being asked to vote on today [in parliament], are going to cost. We do not have that figure.’
HMRC has not produced any detailed impact assessments on the effect of the latest deal proposals, Harra confirmed.
‘We have not provided any impact assessment and certainly in relation to procedures that still have to be worked out in detail between the UK and the EU, I am not in a position to do that,’ Harra said.
‘We have published what information we think we can that will assist, and that is basically the cost of operating customs declarations, which apply UK to EU. And if you assumed that at the end of the implementation period the arrangements that apply between GB and EU, were broadly similar to those in terms of the kinds of declarations that would be made, then subject to behavioural changes, the same kinds of things would apply.’
Asked if there was a ballpark figure on what the additional costs were going to be under the new arrangements for both the UK and the EU, Harra said: ‘I’m not in a position today to do that.’
McKinnell asked if there was at least a range of assumptions for potential scenarios or if there was a cost analysis.
‘I have no cost analysis that I am able to share with you that would cast any more light on that. Obviously from my department’s point of view it wouldn’t be an economic assessment, it would be an assessment of administrative costs,’ said Harra. We have published extensive information about cost of complying with customs procedures, but I cannot give you an indicative cost assessment.’
Harra refuted suggestions that the government was withholding information about the financial impact of Brexit on customs procedures. ‘I’ve certainly not held anything back from publication,’ Harra said. ‘I have shared what we have available to publish, and that was the impact assessment for no deal…I don’t have a revised impact assessment that I’m sitting on not publishing, I assure you.’
Lack of readiness for Brexit - EORI issues
The Treasury Committee also pressed Harra on whether UK businesses were ready to export in a post-Brexit trading environment.
Harra confirmed that while the majority of exporters were as 'prepared as they could be', in the view of HMRC, there was a tranche of several thousand businesses who were not ready and each accounted for exports of more than £250,000 a year to the EU. These businesses only exported to the EU so had no knowledge of non-EU customs and export procedures, which would effectively reflect any no-deal situation for companies exporting goods through Calais, for example.
All exporters to the EU will need to have an Economic Operator Registration and Identification (EORI) number for both the UK and the EU country to which they are exporting before they will be able to trade under a no-deal Brexit.
‘We have segmented businesses based on the data we hold. We have identified a group of businesses that export to EU but do not export to the rest of the world - we’ve targeted just over 3,000 high value businesses that export to the EU and we have contacted each of them to check their state of readiness.
‘About 80% of them are ready or know what they need to do and have taken the necessary steps. But about 20% of them are not as ready as we thought they needed to be. We are now going through some intensive engagement with them to ensure that they are ready and that they are managing their supply chain so that they know how to move their goods through Calais.’
However, these problems would only arise in the event of a no-deal Brexit.
‘If we are talking about a no-deal Brexit on 31 October, we estimate that a quarter of a million businesses would need to use customs for the first time, and we know that around 150,000 of those are VAT registered so we hold their information.
‘There is provision in the Withdrawal Agreement for the implementation period to take longer if that proved necessary. Our current plans are that we have to be ready by 1 January 2021 and in outline terms we think we can do that,’ Harra added.
Bundled goods and services – VAT issues
MPs also questioned Harra on VAT issues on bundled goods and services contracts.
Harra said: ‘There are two different arrangements for services and goods. VAT only applies to goods, but when goods and services are bundled then VAT is relevant on part of the bundle.
‘In relation to goods into NI [Northern Ireland] with certain exceptions NI VAT rules would stay aligned with EU VAT rules so it is important to understand what happens if there is a bundled supply of goods and services. The bundling of goods and services is already a fully aired area of VAT law and there has already been extensive precedence on how you do that, so I am confident that we can come up with guidance on how that works in the future.
‘If there was divergence in the future between the services and goods rules for VAT then it would become more important than it currently is to ensure that those rules are being applied correctly,’ Harra added.
Lack of economic analysis
Commenting on the evidence session, McKinnell said: ‘HMRC has told us that it hasn’t calculated the administrative cost of the government’s new Brexit deal for business.
‘Yet again, there is a void of economic information on the impact of the Withdrawal Agreement Bill. It’s astonishing that the government hasn’t analysed the impact of such a monumental piece of legislation.’
By Sara White