HMRC appears to be putting its flagship "making tax digital" (MTD) project on hold. Instead, it's all hands on deck at the Brit tax authority to handle its customs IT replacement system post-Brexit.
In an update on the Customs Declaration Service (CDS) IT programme, Jon Thompson, chief exec of HMRC, said the department has "proposed a number of projects which should stop, or not start and a number which should be stretched out over a longer time scale". He said the department will give a full update "in due course."
Writing to Parliament's Public Accounts Committee head Meg Hillier, Thompson said the department was allocated an additional £260m of funding for Brexit related costs for 2018/19. "[This], together with the core HMRC budget, gives sufficient funding for CDS and [Customs Handling of Import and Export Freight] for 2018-19".
The UK government's spending watchdog has previously warned HMRC it is biting off more than it can chew by undergoing major transformational projects while simultaneously coping with the fallout of Brexit.
The consequences of a failed customs system could 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.
Richard Asquith, tax specialist at Avalar Richard Asquith, noted that of the department's top five biggest projects, three were classified under the Making Tax Digital programme.
"This is the biggest change since introduction of the Single Market."
He said the timing of the digital VAT launch, which will see 2.3 million businesses input regular online tax returns to HMRC, is two days after Brexit and a "tough ask".
"I doubt they will scrap it, as MTD is seen as an effective tool in closing the VAT tax gap, which is something like £13bn. But a delay looks likely."
Another insider commented that MTD is a "nice-to-have" but most resources are now being directed to HMRC's work on customs.
In 2015, there were around 55 million customs declarations, a figure which is set to increase to 255 million after Brexit. However, CDS was originally designed to handle 150 million declarations each year.
The MTD programme has already been delayed until 2020, partly due to concerns that small businesses do not have the software in place to deal with the changes. According to Asquith, nearly one-third of businesses still use Excel or pen and paper rather than accounting software.
HMRC is due to introduce its quarterly VAT filing system in 2019, with monthly returns expected after 2020. ®