Brexit: UK unprepared for ‘inevitable’ widespread disruption
Trade between the UK and the EU will be seriously disrupted on 1 January whether a post-Brexit agreement is struck or not, Britain’s spending watchdog has warned.
In a damning report on the UK’s readiness for the end of the Brexit transition period, the National Audit Office (NAO) said while some progress had been made, that “timetables are tight”, Covid-19 has “exacerbated delays” and “significant risks remain”.
Of particular concern are the borders with Ireland and France, and the computer systems required to process goods and customs declarations which have not yet been tested.
“There is little time for ports and other third parties to integrate their systems and processes with new or changed government systems, and contingency plans may need to be invoked for some elements,” the NAO said.
“In part, as a result of the delays caused by Covid-19, there is limited time to test individual elements and resolve any emerging issues, ensure elements operate together, familiarise users with them in advance and little or no contingency time in the event of any delays.
Even if the government makes further progress “there is still likely to be significant disruption at the border from 1 January”, the report said, as traders will be unprepared for new EU border controls which will require additional administration and checks.
Northern Ireland will be particularly affected, the NAO said, with no signs of the necessary protocol required to check goods moving to the region from the rest of the UK.
“Due to the scale and complexity of the changes, the lack of time and the impact of ongoing negotiations, there is a very high risk it may not be implemented in time,” the report said. “The government has left itself little time to mobilise its new Trader Support Service (TSS), in which it has announced it is investing £200m, to reduce the burden on traders moving goods to Northern Ireland and to help them prepare.”
It put the blame squarely on the government.
“Some of this uncertainty could have been avoided and better preparations made, had the government addressed sooner issues such as the need for an increase in the number of customs agents to support traders,” it said.
Aimie Stone, senior economist at ADS, the trade organisation for companies in the UK aerospace, defence, security and space sectors, said the absence of a Northern Ireland Border Operating model is one of the biggest worries.
“The NAO do not hold back in their conclusion that some of this uncertainty could have been avoided, and better preparations made, if the government had addressed some of these issues sooner,” she said.
Critical systems untested
According to the government’s latest “reasonable worst-case planning assumptions”, between 40% and 70% of lorries moving between the EU and the UK may still not be ready for the new border controls by 1 January 2021.
Ministers have warned queues of up to 7,000 lorries could block the main Channel crossings.
While arrangements are being developed to minimise delays, the NAO said these depend on new technology and would require the engagement of both trades and hauliers.
Seven inland transit sites for lorries have been identified, however HMRC has said getting everything ready for January 1 was proving “very challenging”.
British lawmakers have delayed the imposition of full import controls on goods coming from the EU until July 2021, but the NAO said there was still “uncertainty” over where the infrastructure would be located and whether it would be ready in time.
It said HMRC still needed to make significant alterations to its customs systems to handle the increase in customs declarations, despite knowing this was likely to be necessary since planning for a no-deal Brexit began in 2017.
“It’s incredibly worrying that, with two months to go, critical computer systems haven’t been properly tested,” said Labour MP Meg Hillier, chair of the Public Accounts Committee. “The government can only hope that everything comes together on the day but this is not certain.”
Sort the basics
Gerry Myton, head of indirect tax at Streets Chartered Accountants, said the report confirmed what had known all along; the warning signs have been flashing for more than a year and not enough has been done to help businesses prepare.
“These incoming changes are going to mean much more than anyone seems to have understood,” Myton said. “We are effectively moving back in time in our relationship with the EU, to what the VAT and Customs regime was like back on 31st December 1992. Effectively, it’s a big step back.”
Indirect tax is one of the most complex factors that will be affected by the incoming changes, he told AccountingWEB. “Businesses not fully aware or prepared for sweeping change need to at least start a review before 31 December 2020 so that any disruption to trade is minimised,” he said. “Businesses remain unsure if they should move stock to an EU27 country or utilise UPS or DPD to pay import VAT and duty on behalf of the end customer.”
With less than two months to go, and less than 30 working days until the transition period ends, he said his advice for firms who have left it late is to “sort out the basics”.
“This includes arranging your EORI number, being aware of incoterms, sorting EU VAT registrations and having a customs agent appointed,” he said. “At present, it’s best not to be distracted by tangents such as looking to get authorised for AEO or a Customs Warehouse. There is time to start that work but you must have the basics in place first.”
For further technical background on how VAT will work after Brexit, make sure to read and bookmark AccountingWEB’s continuing Brace for Brexit coverage.