Deloitte ‘Concerned’ by Brexit Strain on U.K.'s Tax Authority

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By Ben Stupples

Deloitte LLP, the world’s largest accounting firm by revenue, has warned of the impact that the U.K.’s departure from the European Union will have on the country’s tax authority.

“HMRC has a massively important role to play in delivering a successful Brexit,” Matt Ellis, Deloitte’s U.K. tax practice managing partner, said at a Jan. 23 event on Brexit and tax. “We’re concerned that resources will be pulled away from frontline services as they deal with the changes of Brexit.”

Brexit has piled pressure on Her Majesty’s Revenue and Customs as it struggles to balance long-term projects alongside implementing new systems for when the U.K. leaves the EU next year.

The comments from Ellis, made in a debate at the House of Commons organized by the All-Party Parliamentary Group on Responsible Tax, echo concerns about HMRC among U.K. lawmakers.

Last month, HMRC’s spending watchdog said the tax authority’s 10-year transformation plan is “not deliverable” partly due to an increased workload from the U.K. exiting the EU in March 2019.

In addition, the same lawmakers asked HMRC three months ago to outline how it will manage the increased demand that Brexit will put on its customs declaration systems at the U.K. border.

“The U.K.’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 Public Accounts Committee said in its Nov. 13 report, on Brexit and the U.K.’s customs system. “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,” it added.

170 Offices to 13 Regional Hubs

HMRC’s transformation is seeing the tax authority slash its number of offices across the U.K. from 170 to just 13 large regional hubs in city centres, according to an April 2017 parliamentary report.

The move aims to improve HMRC’s spending efficiency and increase collaboration among staff, but the topic has come under consistent scrutiny since the U.K. voted to leave the EU in June 2016.

At a Jan. 23 parliamentary debate on the U.K.’s post-Brexit tax bill, the Public and Commercial Services trade union called on HMRC to halt its transformation amid the uncertainty from Brexit.

“As offices close, staff are being laid over and years of experience are being lost, at a time when our chief executive is forecasting that we might need to recruit 3,000 to 5,000 extra people,” PCS representative Alan Runswick, who is also an HMRC employee, said.

“My union believes that HMRC should pause the office closure programme until it is clear what the Government will need HMRC to do in a post-Brexit situation,” he added.

In response to similar protests from U.K. lawmakers, HMRC’s chief executive, Jon Thompson, has said that Brexit has forced the tax authority to reassess the priorities of its 250 ongoing projects.

“I think you reach the point of organizational capacity and capability and you simply can’t say ‘I can do 250; now I can do 320; now I can do 350,’” he said in an Oct. 25 evidence session with the Public Accounts Committee. Ensuring that the U.K. has a customs declaration service operating when the country leaves the EU will remain a key project “whatever re-prioritization we do,” he added.

HMRC’s March 2018 Brexit Deadline

While the Public Accounts Committee awaits HMRC’s response on its future customs plans, the tax authority has given the government a similar deadline to resolve a post-Brexit transition deal.

The U.K. doesn’t have to impose customs or excise duties, or VAT, on imports or exports between member states while it’s in the EU, but all the levies apply when the country leaves next year.

The government must finalize whether the U.K. will have temporary access to the EU single market post-Brexit by the end of March, Thompson said last September.

HMRC would need between that time to firm up resources and recruit extra staff, Jim Harra, the tax authority’s then-customer strategy director general, said during the same evidence session.

At a Jan. 24 evidence session with U.K. lawmakers, the Treasury’s permanent secretary, Tom Scholar, said that the government was working “very hard” to secure a transition deal with the EU.

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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