MPs warn that cracks are showing at HMRC as it prepares systems for Brexit

SUMMARY:

HMRC is under pressure to deliver its new Customs Declaration Service – without a hitch – to handle an increased workload as a result of Brexit. Recent delays highlight the challenges facing the UK’s tax authority.

HMRCHer Majesty’s Revenue and Customs (HMRC) is beginning to show cracks as it continues to manage a daunting workload ahead of the UK’s exit from the European Union next March, according to MPs on the influential Public Accounts Select Committee.

This is the latest warning from the Committee, which this time last year said that HMRC’s preparations for its new Customs Declaration Service (CDS) are under significant pressure and that failure would be “catastrophic”.

Chair of the Committee, Meg Hillier MP, has written to Jon Thompson, Chief Executive and Permanent Secretary of HMRC, stating the Committee is “disappointed” that despite previous and repeated assurances about the progress of CDS, there has yet again been a slip in the timing of the programme.

CDS is set to replace the ageing Customs Handling of Import and Export Freight (CHIEF) system.

In 2015, around 55 million customs declarations were made by 141,000 traders. The UK’s exit from the European Union (EU) could see the number of customs declarations which HMRC must process each year increase fivefold to 255 million. The Committee has said that a failed customs system could therefore 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’s Thompson recently also said that he was exploring new models that would reduce the friction of traders interacting with government – namely by seeking to build a business case for emulating the Singaporean model of a single-window technology.

He told the House of Lords EU Select Committee that a “single point of contact” for traders would integrate all of the 26 government organisations involved at the border. Currently some government agencies still require what Thompson described as a “wet stamp…an actual stamp on a piece of paper”. He said that in Singapore, “everything is done electronically and you can remove the wet stamp”.

However, Thompson also warned that the solution would not be a quick fix and would be costly.

As such, in the meantime, HMRC is working on boosting the capacity of CHIEF to work as a dual system alongside CDS, whilst it prepares the latter to takeover as the primary system over time.

The Public Accounts Committee latest report states:

“HM Revenue & Customs (HMRC) has a daunting task as it prepares for the UK’s exit from the European Union, in whichever form that takes, whilst reprioritising its ongoing projects and day to day services.

“The Committee recognises these challenges but we remain concerned about the risks to customs and borders post Brexit and the impact on British businesses. The recently announced further delay to HMRC’s new Customs Declaration Service, which means that it is very unlikely to be ready for exporters by the time of Brexit, and the need for further development of HMRC’s systems so that by March 2019 they can handle postponed accounting for import VAT in the event of no deal, underline the risks.”

A reprimand

As noted above, Chair of the Committee, Meg Hillier, has also written to HMRC’s Thompson laying out the MPs’ fresh concerns over further delays to CDS.

Hillier said that in July the Committee urged HMRC to communicate with businesses that may need to start making customs declarations in the event of a no deal Brexit – but in the past two months there has been little progress. She said that HMRC has given “no assurance” that there is a “plan to ensure that businesses are aware of what they will need to do”.

However, the primary concern remains around the development of CDS in time for the increased pressures of Brexit. Hillier said:

“We are disappointed that despite your previous and repeated assurances about the progress of CDS, there has yet again been a slip in the timing of the programme just weeks after we last took evidence on the subject.

“My letter to you in July set out my Committee’s concerns that a fully functioning CDS would not be delivered by January 2019. You told us at our evidence session that CDS will not be ready for exports by January 2019, and as a consequence the period of dual running with CHIEF will be longer than you expected.

“In our November 2017 report on BRexit and the future of Customs, we identified the need for HMRC to have a viable contingency option for CDS. It is good news, therefore, that you are now testing your contingency arrangements.”

Image credit - Image sourced via HMRC