Ed Saltmarsh, ICAEW Tax Faculty’s Technical Manager, VAT and Customs, explains what businesses must do to switch customs platforms to continue trading goods overseas.
For nearly three decades, businesses importing into or exporting from the UK have been able to submit the relevant declarations through HMRC’s Customs Handling of Import and Export Freight (CHIEF) computer system. However, CHIEF will be closed for import declarations after 30 September 2022 and for export declarations after 31 March 2023, at which point CHIEF will be shut down for good.
Instead of CHIEF, businesses will be required to submit customs declarations through HMRC’s Customs Declaration Service (CDS). CDS has been built from the ground up over several years and started operating in 2019. Additional functionality has been added to CDS over time.
So, how did we get here and what do businesses need to know about switching to CDS?
Background
Towards the end of 2014, HMRC announced that it was looking to replace CHIEF. Built in the 1990s, CHIEF was based on inflexible technology, which made the introduction of new functionality very difficult.
According to HMRC, there were due to be more than 20 EU legislative changes between 2016 and 2020, which CHIEF would not have been able to manage within its own system. These changes would have required alternative platforms being linked to CHIEF, which would have required significant IT investment at the risk of service delivery levels.
Even if CHIEF could have been updated to handle these legislative changes, ultimately it would still remain unable to adapt to future changes in customs legislation. As a result, HMRC felt the only option was to replace the entire system. At the time, HMRC aimed to deliver the replacement in 2017, with the following objectives:
- reduce errors;
- offer enhanced service to customers (including HMRC internal users);
- eliminate the use of paper; and
- continue to provide a ‘world-renowned service’ to the customs trade.
To this end, HMRC selected IBM to provide off-the-shelf customs software (also used in the Netherlands), which would be customised to meet the UK’s needs. The software would be hosted on HMRC’s Multi-Digital Tax Platform and accessed via the Government Gateway. The contract was due to be signed on 24 June 2016.
However, on 23 June 2016, the UK voted to leave the EU. On the assumption that the UK would also leave the EU customs union, it was estimated that the number of customs declarations being submitted each year would increase from 55 million to 255 million. HMRC delayed signing the contract to ensure the product would still be suitable. Ultimately, it pressed ahead with IBM.
The revised date for the new service – now named CDS – to go live for all declarations was January 2019, two months before the UK intended to leave the EU customs union. In reality, a phased approach was taken. CHIEF and CDS have run in parallel for the past few years. That will soon come to an end and all declarations will need to be made through CDS from 1 April 2023.
What is the difference?
HMRC claims that CDS is a resilient, reliable and adaptable IT platform and is the first step of the UK border transformation. More importantly, however, it is anticipated that CDS will save businesses time by:
- allowing the submission of customs documents digitally and safely using the secure file upload service;
- providing access to a business’s financial information in a single dashboard where businesses can view account statements, make payments and control standing authority;
- giving real-time notifications and alerts on all customs declarations and movements; and
- allowing a business to manage its finances by opening a duty deferment account and enabling goods to be cleared without delay.
There are some underlying differences between the two systems that businesses need to be aware of. CHIEF was based on the Community Customs Code and Single Administrative Document boxes. CDS, on the other hand, is based on the newer Union Customs Code (or UK Customs Code post-Brexit) and Data Integration and Harmonisation rules.
What this means in practice is that businesses will need to ensure they use the correct tariff when making declarations through CDS, as this tariff will be different to CHIEF. Procedure Codes have also changed.
The format of the submission is also different. Whereas CHIEF was designed for paper forms with 68 boxes used for multiple pieces of information (including boxes that accepted data in a free text format), CDS uses 91 data elements, with each element used for a single piece of data.
How should businesses prepare?
Regardless of whether a business intends to use a customs broker or agent to submit its declarations or do this in-house, the following steps will need to be taken to ensure declarations can be submitted to CDS.
1. Register for a Government Gateway account. The vast majority of businesses should already have this.
2. Apply for an Economic Operator Registration and Identification (EORI) number. This usually takes less than a week, but it can take longer during busy periods. There may be delays as businesses prepare to switch to CDS. That being said, most businesses importing and exporting will already have an EORI number.
3. Register for the CDS. To do so, businesses will need:
a) EORI number;
b) unique taxpayer reference (UTR);
c) address of the business (that HMRC holds on its customs records);
d) national insurance number (if registering an individual or sole trader); and
e) date the business was started.
4. Choose which payment method to use. This includes:
- duty deferment account. Note that CDS uses a different bank account to CHIEF, so businesses already using a duty deferment account will need to set up a new direct debit;
- postponed VAT accounting for import VAT only;
- cash account;
- immediate payment via BACS, CHAPS, online or telephone banking;
- individual guarantee; and
- general guarantee
Businesses need to decide whether to submit their own declarations or instruct a broker or agent to do so. Those instructing an agent can use CDS’s finance dashboard to set up which customs agents can use their accounts.
Alternatively, a business may decide to submit its own declarations. In this case, it will need software that can link into CDS (via its Government Gateway account). Businesses without software should check HMRC’s list of software developers.
Businesses that import and export can adopt CDS for both to save using two systems. However, some might want to wait until they are comfortable with imports before using CDS for exports.
It is recommended that businesses planning to submit their own declarations make use of the Trader Dress Rehearsal service. This is a free service designed to help declarants (those submitting declarations) to prepare for the live CDS.
Northern Ireland
It is worth noting that businesses importing into Northern Ireland from outside the UK and EU should already be using CDS to declare these movements. As things stand, businesses moving goods between Great Britain and Northern Ireland can continue using the Trader Support Service to complete customs and safety and security declarations. How this may be affected by proposed changes to the Northern Ireland Protocol is unclear at the time of writing.
Making a full import declaration through CDS
Before submitting an import declaration through CDS, businesses may need to lodge an Entry Summary Declaration (ESD) before or during the goods’ movement to the UK. For imports into Great Britain, this can be done through the Safety and Security GB service. Although businesses can use this service themselves (with compatible software), many will make use of a Community System Provider to submit an ESD. The goods must then be presented to customs immediately upon arrival in the UK.
If goods are boarding a vessel departing for a location that uses the Goods Vehicle Movement Service or where ‘pre-lodgement’ is needed, a full import declaration on the CDS must be made before the goods are boarded. For goods arriving at other locations, the full declaration must be made within 90 days of the goods being presented to customs.
The CDS import declaration will need to include:
- customs procedure code;
- commodity code;
- declaration unique consignment reference; and
- other information including:
- departure point and destination
- consignee and consignor
- type, amount and packaging of goods
- transport methods and costs
- currencies and valuation methods
- certificates and licences.
Once the declaration has been accepted, HMRC will tell the business how much duty is owed. Any duty that is owed must be paid, or deferred using a duty deferment account, before the goods can be released.
About the author
Ed Saltmarsh, Technical Manager, VAT and Customs, Tax Faculty