£20billion – Brexit Customs Cost to business

HMRC CEO Briefing

Jon Thompson HMRC CEO

As the clock runs down on Teresa May settling on a Customs position to take to the EU,HMRC are working hard behind the scenes and also making headlines. Mentioning £20billion costs and Brexit in the same breath will get you noticed.

Customs CEO Jon Thompson and deputy Jim Harra appeared once more before Members of Parliament. This time they were before Treasury Select Committee on Wednesday 23 May to explain their calculations. The “short” 50 minute appearance before the committee precedes a further full hearing scheduled for 5 June.

Both executives are becoming frequent committee visitors as business, government and media focus on the details of just how Customs will function post-Brexit. Never has the world of Customs clearance been so high profile.

These committee hearings are one of the few outlets available that can be relied upon to hear first hand, unfiltered comment by Customs management on Brexit preparations.

Summary of Key Points

  1. There will be a functioning, but “less than optimal” UK Customs border by January 2021
  2. Depending on the outcome of UK-EU negotiations; it will take 3 -5 years to fully develop Customs systems. Development cannot start until a political decision is made. However the ground work is being prepared through discussions and technical details being explored under NDAs with some stakeholders.
  3. General stakeholder consensus is that they not act (spend money on development of systems) until there is more certainty and clarity.
  4. HMRC is recruiting 5000 additional staff to cope with Brexit.  1100 are already in place working on policy, operations and IT. A large number of these additional people will be located at the National Clearance Hub in Salford. These recruitment plans are separate and additional to any border force staff required by the Home Office.
  5. 39 projects have been put on hold or slowed as a result of HMRC re-prioritising their workload in favour of Brexit..
  6. Non Disclosure Agreements have been signed by a number of stakeholders to allow detailed technical discussions on Customs systems to allow HMRC to better understand stakeholder requirements and operations.
  7. Specific issues with some ports. Fast parcel sector operations have been discussed in detail to further understand and support the UK consumer demand for e-commerce which drives the cross border movement of 1 billion parcels per year.

 

Costings of the 2 Customs models

HMG Future Customs Arrangements : 2 Customs Models  

 

2 options (plus a no deal contingency) are on the table for the Government to take to Brussels to negotiate upon. The Highly Streamlined Model and the New Customs Partnership or Max-Fac. Details were set out in the August Future Arrangements Paper.

Highly Streamlined Customs £17 – 20 billion per year

This model envisages Customs entries which drives a high cost to business. It was this calculation that grabbed the media headlines. It assumes business will incur costs of around £32.50 per Customs entry. This entry cost calculation adopted by HMRC is based on research by University of Nottingham and KPMG that found ranges of £20 to £55 in todays market.  Adding in the cost of complying with origin requirements results in total additional cost to business of £17 – 20 billion annually.

This option will cost HMRC £260m per year to operate.

New Customs Partnership

This model envisages free flow of goods across the border without Customs entries. The dual tariff system could be in place by January 2021 however the system to reclaim the difference between tariffs would not be ready by this time. Further more business stakeholders have suggested to HMRC they would need 12-18 months to assess whether the effort of recovering the difference between tariffs was economically viable. Costs will be £700m but will be net neutral if tariff differences are reclaimed by businesses.

 

Conclusion

It is clear HMRC are in close discussions with selected stakeholders under cover of non disclosure agreements. They are exploring Customs processing possibilities that are politically sensitive and outside of settled government policy to fully understand what can and cannot work.

Preparations are being made, however neither HMRC or trade is spending money yet on developing viable solutions that will deliver Customs systems until there is political certainty. That may be many, many months away. That will be followed by 3 – 5 years of effort to make a system available that will function to satisfy the negotiated outcome.

Seems the Customs sector can look forward to a lengthy period of evolution, workarounds and short term “facilitations

In the meantime, those who like to gamble and have deep pockets may wish to take a shot on opening a Customs Brokerage/Clearance facility or at least a recruitment agency and training school for brokers!  ( We know a thing or two about that )

HRMC next appear before the committee on 5 June. Stay tuned!

 

 

 



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