Plans by HMRC to overhaul the clunky IT system underpinning £34bn in tax at the border may not be complete before Brexit, the UK government's spending watchdog has warned today.
The National Audit Office said there is a risk that HMRC will not have the full functionality and scope of the Customs Declaration Service (CDS) in place by March 2019 – when the UK plans to leave the EU. It said there is "still a significant amount of work to complete".
Uncertainty due to the unknown outcome of the UK/EU negotiations is also affecting the programme, it said. "No changes have yet been made to the scope of the CDS programme following the UK’s decision to leave the EU," it said.
CDS is intended to replace the 25-year-old current system – known as Customs Handling of Import and Export Freight (CHIEF), responsible for duty on imports from countries outside the EU each year. In 2015, nearly £700bn worth of goods crossed the border.
There are currently 55 million annual customs declarations, a figure that is expected to rise to 255 million after the UK leaves the EU.
Some 180,000 traders are expected to make customs declarations for the first time under the new system "assuming the UK leaves the EU customs union," said the report.
HMRC has earmarked £157m for the programme, which will fund the creation of a system with the technical capacity to handle 150 million declarations each year, rather than the estimated 255 million. The department is seeking additional funding for increased volumes through its separate Border Systems Programme.
The watchdog's report follows a stark warning from the Treasury Select Committee that confidence in CDS has collapsed, with committee chair Andrew Tyrie having said the project has rapidly deteriorated.
However, Amyas Morse, head of the NAO, was more optimistic about the system, saying HMRC "has made progress in developing it, but it may need to be ready much earlier than originally planned if there is no agreement extending timescales on the transition to any new customs arrangements.”
He said: "Customs problems have obvious implications for the flow of goods in and out of the UK, so Government as a whole needs to decide whether the extra cost and effort of getting a working system in place for day one is an insurance premium worth paying."
The system was originally due to be introduced by December 2020 in response to new EU rules governing the way that customs duty is levied, calculated and collected by EU member states.
According to the NAO, HMRC has chosen commercially available software for the management of customs declarations and the calculation of tariffs.
But it has already identified issues with how the new software communicates with other parts of HMRC’s technology and could identify more issues as it continues to integrate these systems. ®