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HM Revenue and Customs’ (HMRC) new IT system for customs may not be ready before the UK leaves the European Union (EU), the National Audit Office has warned.
HMRC’s customs declaration service (CDS) is intended to replace the current system for handling import and export freight from outside the EU.
The current system, which has been in place for 25 years, can only handle about 60 million customs declarations per year, but with the UK leaving the EU in two years’ time, the new system must be able to handle much larger numbers.
However, with uncertainties surrounding Brexit negotiations and a tight timeline with several challenges yet to be solved, the NAO said there is a risk that the system will not be ready in time.
“There is still a significant amount of work to complete, and there is a risk that HMRC will not have the full functionality and scope of CDS in place by March 2019 when the UK plans to leave the EU,” the NAO report said, pointing out that HMRC will have only two months between January 2019 – when the system is due to go live – and March 2019, when the UK is scheduled to leave the EU.
“The UK’s negotiations with the EU could result in changes to customs processes in the UK and other EU member states,” the report said. “These negotiations could introduce changes to the new system requirements shortly before the planned implementation date.
“We know that the UK will be leaving the EU by March 2019, but we do not know what customs arrangements will be in place at that point, or whether the Article 50 negotiations will lead to transitional customs arrangements.
“What is clear is that the timeline for completing the CDS programme under its current scope allows very little flexibility should the programme overrun or unexpected problems occur.”
Poor contingency plans
The NAO report comes after the Treasury Committee voiced concerns about CDS earlier this year, saying it had lost confidence in the system being successfully rolled out on time.
The project has gone from being rated green by the Infrastructure and Projects Authority (IPA) in November 2016, to the IPA changing the rating to amber or red, meaning it is “in doubt”, with “major risks”.
Earlier this year, Jim Harra, tax assurance commissioner and director general of customer strategy and design for HMRC, told the Treasury Committee that the system would be implemented in a phased roll-out, with the current Customs Handling of Import and Export Freight (Chief) service being operated “in tandem with CDS during the transition”.
HMRC also believes that the Chief system could be upgraded to handle all customs declarations, should the new system not be ready by March 2019, “but does not know whether it would be able to deliver all the necessary functionality”, the NAO said.
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HMRC has estimated that the CDS programme will cost £157m, but this only covers a system capable of handling 180 million customs declarations a year, whereas the estimated maximum figure based on current volumes of trade is 255 million declarations a year.
“Until it is shown to work at this level and with the UK’s specific systems, there is a risk that this new component may not meet the UK’s requirements,” the NAO said.
HMRC is seeking funding for the increased capacity through its separate border systems programme, but the business case for CDS “does not provide contingency for changes to requirements that may result from negotiations with the EU and any associated costs for business change or technology development, testing and roll-out”, the NAO said.
“It also does not include costs to upgrade the Chief system to develop contingency options,” it added.
There are also issues with the project itself. Although there is a transition plan in place, it is a “high-level” plan and has little detail. Plans to ensure traders are ready to use the new system are also not fully developed, the NAO said.
The CDS will also need to be integrated with several other systems, both within HMRC and third parties, and will have to provide information to 85 different systems across 26 government bodies.
The integration project is still in the early stages, which “could be challenging”, according to the NAO.
“System integration on this scale often raises unexpected issues and the window for testing can become highly pressured,” the report said. “HMRC has already identified issues with how the new software communicates and integrates with other parts of HMRC’s technology. It could identify more issues as it continues to integrate these systems.”
NAO head Amyas Morse said that although HMRC has made progress in developing the new system, “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 added: “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.”
HMRC is also reviewing 24 other systems that may require changes in order to be ready for day one of Brexit. These include the National Computerised Transit System, the system used for duty stamps, and the departmental trader register.