In a letter to HMRC chief executive Jon Thompson, following his appearance in front of the public accounts committee (PAC) last month, chair Meg Hillier wrote: ‘We were disappointed that despite your previous and repeated assurances about the process of CDS, there has yet again been a slip in the timing of the programme just weeks after we last took evidence on the subject.’

Thompson has now admitted CDS will not be ready for exports by January 2019, as originally planned, and so the period of dual running with legacy CHIEF system will be longer than expected. However, Hillier conceded it was ‘good news’ that HMRC is now also testing its contingency arrangements.

Hillier also took Thompson to task over HMRC’s lack of communication with businesses that may need to start making customs declarations in the event of a ‘no deal’ Brexit.

She wrote: ‘I am both concerned and disappointed that nearly two months on you have made little progress.

‘You gave us no assurance that HMRC has a plan to ensure that businesses are aware of what they will need to do. We are particularly concerned about the 100,000 small traders that HMRC cannot engage directly with, as you do not know who they are.’

Hillier has asked Thompson to provide a written update on the level of business understanding and preparedness for changes to customs rules and procedures in the event of no deal.

She also challenged the HMRC chief over his assertion there is currently no significant risk to tax revenues or tax compliance if there is no deal. This will depend in part on the introduction of postponed accounting on all imports so that UK importers of EU goods do not pay VAT earlier than they currently do, and Hillier urged HMRC to commit sufficient resources to this aspect of its work on CDS.

An HMRC spokesperson said: ‘HMRC has well-developed plans to ensure that there will be a functioning customs, VAT and excise system in the unlikely event of a no deal. We have engaged with business representative bodies who will be key partners in reaching businesses to ensure that they understand any implications for them.

‘We have always said the timeline for implementing the CDS is tight, but that we would operate the current system in tandem throughout the transition. We have made good progress to ensure that the UK has a customs system capable of handling any potential volume of customs declarations after March 2019.’

Separately, PAC has also asked HMRC for an update on new measures to tackle estimated losses of between £1bn and £1.5bn from online VAT fraud. These include memorandums of understanding (MOUs)with seven marketplaces which have agreed to provide data on overseas suppliers.

In this letter, Hillier expressed concern about how successfully HMRC is policing the MOUs; whether there remains an issue with ‘phoenix’ accounts which are shut down and reopen under a new name; and the impact of the fulfilment house due diligence scheme.

PAC letter regarding CDS is here.

PAC letter regarding online VAT fraud is here.

Report by Pat Sweet