Photo: Louise Haywood-Schiefer
The chair of the Public Accounts Committee has said that they need further evidence that HM Revenue and Customs' updated customs system will be ready in the event of the UK leaving the European Union with no deal in March next year.
In a letter to HMRC chief executive Jon Thompson, committee chair Meg Hiller said she was writing to express the committee’s concerns about the “significant challenge” faced by the tax and revenue department to get its new Customs Declaration Service ready for a no-deal Brexit.
Work to replace HMRC’s customs system, Customs Handling of Import and Export Freight (CHIEF), with a new system, the Customs Declaration Service (CDS), began in 2013-14, before the EU referendum took place.
After the vote it became clear the customs system would need to be able to handle an estimated 255 million declarations a year post-Brexit – five times more than the 55 million made by traders in 2015.
A National Audit Office report published last month revealed that HMRC had accelerated work on its contingency plans for handling customs declarations in the event of a “no-deal” Brexit next March. It said that if this work was successfully completed, HMRC would have the system capacity to handle customs declarations no matter what the outcome of exit negotiations between the UK and the EU.
This came after Thompson told MPs in April that it had contingency plans should CDS be “significantly delayed”. These contingency plans include running CHIEF in tandem with CDS while transitioning between the two systems, refreshing the CHIEF IT infrastructure so it can be scaled to cope with processing a higher volume of customs declarations, and exploring other technology and process changes that may be required.
The NAO report was hailed by Brexit campaigners as evidence of government preparations for a no-deal Brexit in order to strengthen the UK’s negotiating position, including then Brexit secretary David Davis’s chief of staff Stewart Jackson, who tweeted Civil Service World’s report.
Revamped HMRC customs system ‘set to be ready for no-deal Brexit’ | Civil Service World (@CSWnews) https://t.co/hFEZNidz7W
— Stewart Jackson (@BrexitStewart) June 29, 2018
However, in her letter to Thompson, Hillier said that the committee remained “worried that the successful timely delivery of a fully functioning CDS remains uncertain, particularly for exporters”.
She said: “We note that you have made progress with developing the existing CHIEF system as a contingency option, and that you expect to have a clear view by September as to whether it can handle up to 300 million customs declarations each year. You told us that this would ease the pressure on the CDS timetable and migration plan. Given the challenges in the CDS programme outlined above, it is important that you confirm CHIEF can indeed be scaled up to handle the potential increased volume of customs declarations, in the event of no deal.”
Hillier acknowledged that HMRC must continue to prepare for multiple scenarios because future customs arrangements remain uncertain, including the development of the proposed 'facilitated customs arrangement', which government set out in the White Paper published on 12 July. “You similarly told us that you are now re-evaluating what exactly this means for existing work, including CDS and the Border Systems Programme. We understand that the proposed new customs model would involve the UK both setting its own tariffs, and administering the EU's tariffs for goods entering the UK that are destined for the EU.
“You told us that this would undoubtedly require some changes to CDS to enable it to operate two tariffs, and that you have already started scoping a plan to deliver a system to run the two alternative tariffs by the end of the implementation period in December 2020. You explained that if the new customs model was negotiated, six of the nine projects in the scope of the Border Systems Programme would no longer be needed. However, if no deal is agreed with the EU, all nine of these projects would be required by 29 March 2019.”
She added that the committee is “staggered by the potential additional burdens that the new customs arrangements could place on UK businesses, regardless of the outcome of negotiations with the EU".
She said: "In the meantime, businesses face significant uncertainty over what arrangements they need to make.
“The proposed 'facilitated customs arrangement' would mean that the 150,000 traders which already make customs declarations because they currently trade outside the EU would need to change their business processes because they would have to apply an appropriate tariff depending on the goods' final destination.
“You confirmed that if CDS's export functionality is not ready on time, HMRC could continue using the existing CHIEF for exports, and the intention has always been to run the two systems in parallel. However, this would burden some traders with having to use two systems.”
Hillier also raised concerns that the customs process around the Ireland border would “not be optimal” in the event of no deal and would make it more difficult for HMRC and the Border Force to ensure traders are complying with their obligations.
“It is essential that HMRC and Border Force work together to ensure that adequate contingency arrangements are in place for border enforcement in the event of no deal,” she added.