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CDS risks remain, says National Audit Office

[ June 28, 2018   //   ]

Risks remain to the delivery of HM Revenue & Customs new CDS computer system, said the National Audit Office in a progress updated published on 28 June, although it acknowledges that progress has been made.

CDS (Customs Declaration Service) is HMRC’s replacement for the Chief computer system which is being implemented between now and early 2019 – just weeks before the UK is due to exit the European Union.

The NAO report said that while testing of CDS is continuing, HMRC will not know whether it works in live service until it has implemented all the functionality in December 2018. However, the late release of functionality and migration of users increases the risk that there would be insufficient time to resolve any issues identified with the last release – not to mention any issues that emerge in the live environment, as is common with IT systems, it said.

HMRC is unlikely to complete the migration of all users on to CDS in January 2019, the report continued. HMRC plans to closely manage the migration of traders who submit high volumes of declarations and has a communications campaign in place for lower-volume traders. HMRC’s overall aim is to complete migration by January 2019 as planned. However, traders who export goods may not complete migration by this date as they will only have one month to complete the process. HMRC is considering whether it can bring forward its November and December releases or reduce the time available to some users to migrate on to CDS. However, this may not be possible if the development of the CDS system continues to progress at its current rate, or if CDS users are not able to respond quickly enough.

While traders will continue to have access to Chief, which will continue running alongside CDS, for a period after January 2019, this could delay completion of migration as traders may continue to use Chief for longer than necessary.

Key organisations that need to change their software and business processes to use CDS may not be ready. According to a NAO survey in February and March, community system providers (CSPs) and customs software suppliers are not yet confident that the full scope of CDS will be ready by January 2019.

NAO adds that the change in release strategy means that HMRC will now be developing and testing the new system at the same time as it migrates users. This increases the risks to the programme because traders involved in the first release will have to support a further two releases and associated changes to their own systems and processes before the end of the year.

NAO says that it iscritical that HMRC fully tests and scales-up its contingency option over the summer of 2018, supports delivery partners such as CSPs and software providers to make necessary changes to their own systems, communicates effectively with traders about new customs processes and migrates them successfully on to CDS.

While HMRC’s communication has been generally good, technical information has consistently arrived later than they would have liked, and has not always been complete or sufficiently detailed. In March, four out of five CSPs and 14 out of 19 customs software suppliers surveyed were uncertain about exactly what changes they needed to make to their software and therefore when their systems would be ready for users to submit customs declarations.

HMRC has started to communicate with existing traders and other users who regularly engage with Chief but there is a lot more to do and has not yet started communicating with at least 145,000 EU‑only traders about CDS, who may need to make customs declarations once the UK leaves the EU. In light of the continuing uncertainty about the customs arrangements that will apply from March 2019, HMRC has prepared, but not yet started, a communications campaign for these traders, which it is keeping under review.

HMRC is confident that Chief will be able to handle the 255 million declarations that might be required after the UK leaves the EU, but scaling it significantly beyond this would more difficult. The report says that HMRC should ensure it has the system capacity to handle customs declarations no matter what the outcome of negotiations between the UK and the EU, noting that the ageing Chief system would be too expensive and difficult to upgrade to meet the long-term requirements of the Union Customs Code.

The report also highlights difficulties in integrating CDS with HMRC’s main finance system, which has been more complex than expected and was not completed in April 2018 as planned. Instead, it will initially integrate CDS with the legacy finance system currently used for indirect taxes (CECAS) which, HMRC says, offers all the functionality that CDS requires in the short term. It continues to work on integrating CDS with its main finance system and expects to complete this work by January 2019.

Commenting on the report, Brad Ashton, indirect tax partner at audit and tax firm RSM said while CDS appeared to be on track, the report contained significant warnings.

As well as the temptation for users to continue to use Chief after CDS roll-out  the critical factor would be how CDS will cope with the vast increase in customs declaration expected post-Brexit – something that the CDS commissioners did not anticipate.

He said: “’A jump from around 55 million customs declarations per year to 255 million would test any system, let alone a business and Government critical one. Added to the fact that a minimum of 145,000 additional companies that currently trade with the rest of the EU will be exposed to customs declarations for the first time post-Brexit makes the successful  implementation of CDS arguably as important as the final Brexit withdrawal deal.”

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