Warning of potential ‘catastrophic’ problems with HMRC’s customs system

HMRC has been told it must do more to ensure its new customs system, the Customs Declaration Service (CDS) is ready in time for Brexit, or face ‘catastrophic’ consequences, according to a report from the public accounts committee (PAC) which warns the department is facing an overload of development work in the run up to the UK quitting the EU

The committee says the department has yet to agree funding for contingency options, despite the potentially huge disruption involved if CDS is not delivered as required, or inform businesses of how the system will work once the UK has left  the EU in March 2019.

HMRC’s latest estimate is that 132,000 traders will have to make customs declarations for the first time following Brexit, but PAC’s inquiry found that the department has not yet done enough to manage the ‘huge uncertainty’ faced by a large number of traders.

While HMRC has engaged with some larger traders and representative group, it only plans to start wider engagement with all traders after March 2018. PAC wants HMRC to ensure that traders are informed of the CDS timeline and progress by January 2018, and aim to increase the number of registered traders under the trusted trader scheme.

HMRC has further work to do to increase the capacity of CDS to handle the 255m customs declarations expected each year post Brexit, a five-fold increase on the current workload. The committee’s report says a failed customs system could ‘lead to huge disruption for businesses, with delays potentially causing massive queues at Dover and resulting in food being left to rot in trucks at the border’.

HMRC has said its existing system, CHIEF, will be developed as a contingency option in the event of delays to CDS, but has told PAC that CHIEF is not very flexible when it comes to making changes.

In addition, HMRC does not yet have funding to increase the capacity of CDS or to develop contingency options. HMRC does not know how much it would cost to upgrade CDS to deal with the potential increase in declarations, and says it will only know this in January 2018.

The PAC report states: ‘The existing CHIEF system is its main contingency option, but we are surprised to hear that HMRC and HM Treasury are still only “in conversation” over the £7.3m needed to upgrade CHIEF.’

Meg Hillier, PAC chair, said: ‘Failure to have a viable customs system in place before the UK's planned exit from the EU would wreak havoc for UK business, trade and our international reputation. Confidence would collapse amid the potentially catastrophic effects.

‘HMRC is under considerable pressure to deliver the new CDS in time, but it does not yet have funding to increase the capacity of CDS to deal with the consequences of Brexit—nor to develop contingency options. This is deeply worrying.

‘HMRC must press the case to secure this funding now and ensure that, if other plans fail, customs will be fit for purpose.’

PAC’s report also says that HMRC is currently managing an ‘unsustainable’ amount of change which could put the delivery of CDS at risk. The department is in the middle of a major transformation programme, with 15 programmes and more than 250 projects in its transformation portfolio, including the flagship Making Tax Digital initiative.

The report states: ‘HMRC told us that CDS is one of its seven most important programmes but we are concerned about the department’s ability to balance its overall risks and ensure it puts emphasis on the right areas.

‘HMRC itself recognises that the scale of its operations, its organisational transformation programme, ongoing policy changes, and preparing for the UK exiting the EU, is an unsustainable amount of change to be dealing with at one time. It intends to undertake a full prioritisation exercise early next year.

‘We agree that HMRC needs to urgently prioritise and make difficult decisions, with the support of HM Treasury. HMRC and wider government need to make CDS one of their top priorities to ensure successful delivery. The UK cannot afford for this to go wrong.’

PAC is asking HMRC to report back by March 2018 with clear plans on how it will manage the challenges it faces due to Brexit and its ongoing transformation programmes, including how this will help to mitigate the risks in the CDS programme.

PAC’s report, Brexit and the future of customs is here.

Report by Pat Sweet

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