30 Oct 2018

Brexit was the spectre haunting the Chancellor's 29 October budget speech. It received few direct mentions, but its implications pervaded every economic forecast and announcement. One nugget for businesses dependent on import or export appeared incongruously alongside the announcement that visitors from the US, Canada, New Zealand, Australia and Japan will soon be able to use the e-passport gates at Heathrow and other UK ports. The business announcement was:

Businesses will be able to become customs trusted traders (including ‘Authorised Economic Operator’ or 'AEO') in half the time it currently takes, as part of the UK’s aim to be at the cutting edge of global customs administration. HMRC will implement the improvements within two years. 

This is, at best, mixed news for business.  AEO or "trusted trader" status is likely to be the key to any form of "fast track" procedures for post-Brexit customs and border clearance, though the full potential benefit would require mutual recognition of EU27 and UK certifications. Currently, the application procedure for AEO status requires businesses to select AEOS (security), AEOC (customs) or a combined certification. Whichever route is chosen, the applicant must submit fully documented procedures for assessment and audit by HMRC to determine whether they are sufficiently robust and transparent to justify trusted status. The application and assessment process stipulates a 120 day period from application to decision. However, HMRC has power to "stop the clock" should it encounter any problems or points requiring clarification. That power has been frequently used, and in some cases applications have taken up to 18 months to complete. 

Any acceleration in that process would be welcome. However, much depends on how it is achieved. One approach would be to boost HMRC resources so that more qualified assessors were available.  However, that might prove difficult. Many of those with experience of the customs and security issues relevant to AEO status are former HMRC employees and officials now working as independent consultants. Another approach might be to allow a form of "provisional" approval based either on a "light touch" initial audit or perhaps even on a default approval subject to subsequent audit. In either case, the risk to business would be the potential clawback of any benefits or reliefs obtained should a provisional approval be withdrawn.  If, as the proposal develops, provisional approval emerges as the route that HMRC decides to follow, then businesses would need to be acutely aware that "trusted trader" status might be withdrawn if procedures are not sufficiently robust at the outset, or if they are not adequately maintained and operated once AEO status has been obtained. 

HMRC's promise to "implement the improvements within two years" is also potentially troubling. A "no deal" Brexit would see the UK leaving the EU on 29 March 2019 without the benefit of a transitional or implementation period. Even if a withdrawal agreement is reached (and ratified) so that a transitional period can be applied, it would be due to end on 31 December 2020. HMRC's promised improvements would be just about due for delivery at that point. Any delay due (for example) to resource shortage or diversion to other projects, such as the new and already overdue online customs declaration system (CDS), might upset that timetable, leaving UK businesses scrambling for "trusted trader" status just as Brexit bites.