Customs arrangements in 2019 – a new system just when we are leaving the EU

The UK is going to introduce a new Customs system in early 2019, the Customs Declaration Service, immediately prior to the UK departure from the EU. 

The NAO published a report in July 2017 setting out its concerns about the Customs Declaration Service and the Public Accounts Committee has now, November 2017, published its own report Brexit and the future of Customs.

The Executive Summary from the PAC report states:

“Under current plans, the UK is set to leave the European single market and the customs union in March 2019. It would be catastrophic if HM Revenue & Customs’ (HMRC) new customs system, the Customs Declaration Service (CDS), is not ready in time and if there is no viable fall-back option. 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. 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. This is a programme of national importance that could have a huge reputational impact for the UK if it is not delivered successfully.

The uncertainty regarding the outcome of UK-EU negotiations is a complicating factor but it should not be used by HMRC to avoid taking action now in areas including: scaling up the CDS service to handle 255 million declarations; ensuring a viable contingency option is in place well before January 2019; and communicating with traders. There are financial as well as operational implications of not acting now.

This is a tight timetable at the best of times. With the hard deadline of Brexit, delay is not an option. The Treasury needs to ensure there is funding in place to develop contingency options so that there are no barriers to continuity of service. HMRC also needs to do a lot more to work with the many businesses affected.

Much remains to be done to have an effective CDS in place, on time, and that traders know how to use. We intend to keep a close eye on this programme and expect to review progress early in the Summer of 2018, following a further review by the National Audit Office.”

The introduction to the PAC report sets out the background and identifies the enormous risks if the new system does not work as intended:

“In 2013–14, HM Revenue & Customs (HMRC) started planning to replace its customs system, known as Customs Handling of Import and Export Freight (CHIEF), following changes to European Union (EU) legislation which would have been costly and difficult to make on CHIEF’s ageing technology. HMRC is replacing CHIEF with a new Customs Declaration Service (CDS). Planning for the new system started before the EU referendum in June 2016. HMRC maintains that the programme is on track and is well governed. However, HMRC admits that major risks remain, which means that CDS might not be fully operating by the planned date of January 2019. HMRC highlights four major risk areas: integrating the eight CDS system components; testing CDS to ensure it can correctly handle the potential increase to 255 million declarations every year; migrating traders from the existing CHIEF service to CDS; and ensuring that users are ready to make customs declarations in the new system. But HMRC’s timetable is incredibly tight given the amount of work still to do. HMRC will only know by July 2018 whether the system works as intended, which is only one month before the first traders start to use it, and gives very little time to take remedial action if anything goes wrong.” 

Nick McChesney, Chair of the Tax Faculty VAT Committee, comments as follows on the broader issues that will need to be addressed and agreed:

“It is clear that the UK will require a robust customs declaration system to be in place upon its withdrawal from the EU (and consequently the Single Market and Customs Union) as the volume of imports and exports (and associated documentation) which are required to be processed will rise significantly.  Under existing arrangements most goods move freely within the EU customs zone.  However, once the UK ceases to be an EU member state, traders in goods will face the reintroduction of non-tariff barriers and customs duties on goods entering the territory of the EU customs zone from the UK.  Goods shipped from the remaining EU member states to the UK may also be liable to duties.

Uncertainty currently remains over the systems and customs procedures which will be adopted with effect from 30 March 2019 and whether and in what form transitional arrangements can be negotiated between the UK and the EU to allow for an orderly exit (in addition to the EU’s proposals on dealing with goods in transit, etc).  This summer the UK Government published its proposals on Future Customs Arrangements – a future partnership paper .  However, these proposals leave much to be negotiated and it is far from clear whether the other EU 27 member states will agree to them.”