U.K. Facing ‘Catastrophic’ Disruption Without Customs Reform

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By Ali Qassim

British traders face “catastrophic” disruptions to their businesses if the U.K.’s tax office fails to implement its new customs system by the time the U.K. is set to leave the European Union, a parliamentary spending watchdog says.

The Public Accounts Committee anticipated in a report that Her Majesty’s Revenue and Customs may need to process up to 255 million customs declarations by April 2019, five times more than the 55 million handled in 2015.

Meg Hillier, the head of the 15-member committee, said it’s “deeply worrying” that HMRC “does not yet have funding to increase the capacity” of its new Customs Declaration Service (CDS) “to deal with the consequences of Brexit—nor to develop contingency options.”

In a statement to launch the report, Hillier warned that failure to have a viable CDS by the deadline “would wreak havoc for UK business, trade and our international reputation” and that “confidence would collapse amid the potentially catastrophic effects.”

The report forms part of the committee’s ongoing examination of aspects of the U.K.’s departure from the EU. It also comes as the government prepares to publish a Customs Bill by the end of the year. New rules will set current customs, value-added tax and excise regimes that will operate for cross-border transactions post Brexit.

CDS by January 2019

A spokesman for HMRC told Bloomberg Tax in a Nov. 14 email that the CDS “is on track” for delivery by January 2019 and “has the capacity to deal with a significant increase” in customs declarations at the border.

“We’ve already allocated over half a billion pounds in funding to ensure a successful exit from the EU and we will have a fully functioning UK customs service on day one post Brexit,” he said.

In its report, the committee called for HMRC to ensure that, by January 2018, it has informed traders about the timeline and progress it has made on CDS, which will replace its existing Customs Handling of Import and Export Freight (CHIEF) system.

Although HMRC has engaged with some large traders, it hasn’t yet done enough to promote CDS to the estimated 132,000 traders who will have to make customs declarations for the first time after the end of March 2018, the committee said.

HMRC should also do more to market the role of “trusted traders,” who are described as a risk-assessed group of traders that are authorized to make customs declarations under simplified arrangements. Currently, only 604 among the 141,000 traders that use CHIEF are under the “trusted traders” category.

Enough Flexibility?

The committee urged HMRC to ensure that both the CDS and its contingency option—an upgraded version of the current CHIEF—are flexible enough to adapt to future changes to tariffs, new free-trade agreements and international trade quotas.

An upgraded CHIEF “needs to respond to changes in wider customs and trade requirements, such as applying additional duties on goods from specific countries,” it said. The committee expects HMRC to report back on progress by March 2018.

In response, the HMRC spokesman said the tax office will continue to provide the current CHIEF service in tandem with CDS during the transition. “This will provide an additional level of contingency, should it be required,” he said.

The committee also called for Her Majesty’s Treasury to provide more funding for CDS by December 2017. It said it was “surprised” to hear HMT and HMRC “are still only ‘in conversation’ over” the 7.3 million pounds ($9.5 million) needed to upgrade CHIEF, considering this to be a “relatively small sum to pay to guard against the wider financial and reputational costs of failure”.

Chancellor Philip Hammond will unveil his annual fiscal budget Nov. 22.

To contact the reporter on this story: Ali Qassim in London at correspondents@bna.com

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

For More Information

, the Public Accounts Committee report is available at https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/401/401.pdf

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