Is HMRC right about the cost of Max- Fac customs clearance, given it seems so many of their estimates are wrong?
HMRC have said that the cost of Customs clearance declarations that this system will require will amount to maybe £20bn a year for 200 million customs clearances.
Let's for a moment assume, as they do, that the number of clearances will not reduce (which they seem to have ignored - oddly) that means the cost will be £100 a clearance. That is made up of an assumed £32.50 charge on each side of the import or export plus, I guess, a broadly similar cost to business to actually complete the forms.
So the rational question to ask is whether it might cost £35.00 for business to complete a customs declaration. Even if large parts of this could be automated the whole process will take time, effort, management, communication, systems, checks, audits and delivery so that the right person has the right form on the right consignment at the right time. Of course costs will vary. But allowing for overheads and on costs of employment £35 seems entirely fair for business.
In which case it seems fair for processing too. Twice over, of course.
So my gut reaction is that HMRC may well be in the right area with this one.
Now, how will Rees-Mogg react to this one? Fake news, I guess.
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This is pertinent and good:
What one piece of Jacob Rees-Mogg nonsense tells us about Brexit tactics
http://www.politics.co.uk/blogs/2018/05/21/what-one-piece-of-jacob-rees-mogg-nonsense-tells-us-about-br
very good article and the last part is telling – summarising – with a posh accent and confidence you can lie with relative impunity Smogg has made a career of it.
It’s difficult to conclude other than very few (if any) real-life consequences have ever troubled Brexiteer’s thinking.
Small wonder the JRM’s of this world don’t consider tax implications; they believe that paying tax is optional. It’s part of the Tory creed.
I’d be more interested in what he stands to gain or lose financially from Brexit.
The other shoe has still to drop. Post-Brexit, Britain will require a Trade Department effectively of the same scale as the EU (perhaps even larger, because it has many more deals to be done, in short order), and a vast Customs Operations organisation, on the ground, at the points of entry, that is enormous (whether or not there is technology, because this is also – a fortiori? – about immigration).
With little time left, where is it? Where is the expertise? Where is the investment? Where is the planning? Where are the sites; the site clearance? Britain is actually and currently working as if there is virtually nothing to be done. This ‘phony war’ has gone on so long it may be reasonable to surmise that the Government has given up; that Brexit is off! But it isn’t. Oh, dear!
Do you wonder we are hearing of transition until 2023 now, at least?
I wonder if JRM has listened to this? Doubt it.
https://www.lbc.co.uk/radio/presenters/james-obrien/the-van-driver-being-put-out-of-business-by-brexit/
I will listen asap
Andrew Dickie says:
“I wonder if JRM has listened to this? Doubt it.”
I wonder if JRM listens to anybody. I doubt it.
Remain represents a very large proportion of the country, but does does not have sufficient political party support (outside Scotland); the organisation, resources or media representation to deliver the critical information to the public that Britain is completely unprepared for Brexit, has carried out insufficent planning and investment; and does not even have access to all the skills, or operational facilities required in the necessary timescale to deliver Brexit without serious negative consequences – for everybody.
It is telling that one Twitter response to the LBC van driver suddenly reveals that given this evidence, the voter Tweeting suddenly realises that he may have voted the wrong way. The electorate voted narrowly for a proposal that simply cannot be delivered as promised by the Brexiteers without very serious disclocation of the British economy and society. It was never possible as a practical policy. Theresa May’s government has a great deal to answer for; in failing to manage a functionally efficient and competently “doable” Brexit, or the courage to face the facts, and tell the British people.
It deeply concerns me that there are ‘hard Brexiteers’ in Government, who are anxious solely to deliver Brexit in haste, and badly if need be; because they fear that if it is not done in haste the British people will soone enough be able to discern the negative impact, and realise the consequences before it is too late; and that in the political light of that dawning reality, the British people will turn sharply against it, and Brexit never happens. The Government is in the hands of an unrepresentative minority, who are notable already for the poverty of their judgement, and an excessive commitment to ideological dogma.
this is about right – to get a customs agent to fill in the form is around £25 per form so ball park its correct. the costs of this to business will be crazy
https://www.lbc.co.uk/radio/presenters/james-obrien/the-van-driver-being-put-out-of-business-by-brexit/
As someone who does this it’s over estimated IMHO but it isn’t completely out of the ball park. I think around 25 quid is more realistic but it does depend.
Import clearance is more expensive than export and how many lines you need to complete comes into and within the EU there is a big difference in prices for clearance. I would suggest countries that run a trade deficit have cheaper clearance costs.
Although the US is expensive due to their system of licenced Customs Brokers so doesn’t always apply.
The real question appears to be one of economies of scale. If you are importing the odd thing here and there it probably will cost a fair amount in staff time. If you are importing very similar shipments every day you are going to have a standard form and the real cost to business will be pennies.
If we assume two thirds of the 20 billion is going to HMRC that leaves them with 13.33 billion. If this is mainly composed of staff time and we assume that staff time costs 35 pounds an hour (probably an overstatement which could include other incidentals) then it would amount to 371,428,571 hours of staff time. Based on a 40 hour working week, working 46 weeks a year that would mean more than 40,000 new jobs in customs. Does that sound realistic? Will the ports that handle freight be packed with HMRC staff members?
First, i was only half going to them
Second, I doubt very much civil service time comes at £35 an hour wiuth full cost recovery
But yes, that is a lot of recessing time and HMRC only costs £4bn a year to run now, which makes the figure look high, I agree
I just realised that I made a mistake in my original calculation and assumed these people were working 40 hours a day, so I was out by a factor of 5, meaning that based on my guess of 35 pounds an hour per staff member they would have 200,000 new HMRC staff members.
I noted your comment about 4 billion to run HMRC and looked it up. Apparently they have 56,000 members of staff, so the per headcount cost per year is about 71,428GBP which is pretty close to 35GBP per hour per staff member. A good guess!
Anyway another way to work it out is to say this 13.3 billion is roughly 3.325 times the current HMRC budget, and 3.325 times the current HMRC staff of 56,000 comes to 186,200 new staff members.
A better guess might be to work out how many customs people we currently have and adjust it on the basis of the percentage of trade that is currently from the EU. If the split between customs and income tax is roughly as it was when the two merged to form HMRC there are probably about 14,000 customs officers today. The EU accounts for roughly half of imports and exports, so we can probably safely guess that their workload might double at worst. This would require 28,000 customs officers and based on the rough headcount cost for HMRC would come to almost exactly 1 billion pounds in additional cost.
You are forgetting HMRC only get half of this: the rest goes to the country on the other side of the transaction
Based on the increased headcount of doubling customs officials at HMRC to cope with the fact that half of imports/exports will now not be a simple EU case I suspect the real cost of processing the forms will be about 5GBP per form rather than 32.50GBP.
You are I think applying a marginal costing approach, and then a deeply optimistic one
As a rule of thumb, the cost per working hour of a junior office worker – desk, floorspace, computer, utilities, insurance – is about equal to their salary and benefits.
The Civil Service is very, very efficient at this: but don’t quote me on that, I work in the private sector and everyone knows we’re far better at everything.
The mistake you make is that Customs officers complete entries…they don’t it’s mostly freight forwarders.
HMRC don’t do don’t border controls and haven’t for years. It’s Border Force who do because HMRC is about revenue and has little to do border controls which are by other departments e.g. DEFRA, Port Health etc.
But that will change….it will have to
I must have misunderstood what the Head of HMRC said. I had assumed the £20 billion would include the cost of new buildings, extra HGV parking and holding areas, and other infrastructure expenditures, all of which ultimately would come from HMG and txpayers.. These of course would be a one-off cost, not an annual expenditure. But what you are saying is that the £20 billion per year is purely the cost of declarations made by exporting companies and organisations, not HMG/us. Of course, ultimately, the £20 billion would be a cost for the national economy, even if not charged to to the taxpayer. So in the first year, considerably more than £20 billion would be needed, which figure coul be added to the “divorce bill” of £35 billion. I do wonder how many Trident submarines or aircraft for aircraftless aircraft carriers, NHS hospitals and staff, extra police, help to university fees, affordable homes for young couples, etc etc etc could be paid for from this total cost of leaving the EU. Maybe not building grammar schools would help pay for infrastructure at seaports.
He said it was £32.50 a transaction
There was no mention in parliament of what precisely that was meant to cover: it would be a cost to business whatever HMRC spent it on
Wouldn’t there be some leve of corresponding offset for business not having to complete intrastat (I’m assuming that’s still in place, been a while since I worked in that field) returns as these were originally intended to replace customs declarations as the basis for EU trade calculation.
Intrastat is a doddle by comparison
Consider this. Each side of the Irish border has different taxes for alcohol, fuel tobacco etc. Many international clothing chains have dual pricing in both euro and sterling which are rarely exactly equivalent. Despite all of this the present borderless system is deemed to be working. They seem to have found some way of keeping things simple.
Also, as I understand it, the Customs authorities rely upon self-certification and only carry out sample checks, so perhaps the maximum figure only corresponds to the case of 100% sampling.
In real life an exporter sending a repeat batch abroad would fire off a copy of the electronic form they filled in last time with a few changes and they would expect to receive an automated reply. The customs would only get directly involved during random auditing. There could be heavy fines for transgression. That would mean that either the exporters and importers would conform or else they would generate a strong revenue income.
An interesting point is that countries outside the EU are already doing the necessary paperwork. If the EU countries wish to burden themselves with a high administrative load then that is their choice. The situation in any case is asymmetric. Exporters from the UK always have to deal with the UK authorities, whereas for foreign importers, the UK is one case in many. Where a UK supplier is exporting to EU countries then the procedure is the same for all EU countries.
I am reminded here of the debate as to whether we should adopt the Euro. We were told that our administrative costs would remain high because we would have to continue to accommodate a varying exchange rate. Despite this the UK has a good record of attracting inward investment.
But you are ignoring all the changes that will take place including to tariffs, place of origin rules and more
If you make up a false situation you get a false answer
The border is deemed to be working?
“South Armagh gangs are also, again, opening outlets around the Republic and Northern Ireland as they see greater opportunities for illicit fuel as price differentials loom with the approach of Brexit.
At the height of the fuel laundering about a decade ago, it was estimated the UK exchequer was losing between £250m (€290m) and £350m (€407m) a year and half the filling stations in Northern Ireland were selling their washed product.” https://www.independent.ie/irish-news/border-smugglers-back-in-fuel-trade-35737735
The article also points out that the new ‘smart’ answer adding markers to fuel has resulted in a 1000 litres of carcinogenic chemicals being left by the roadside after being filtered out of fuel.
Governments have a pretty poor record when it comes to hi-tec solutions.
Looking elsewhere I came across a piece reporting a Dutch perspective – and saying they had come up with a very similar estimate – €80 – €120 per licence (which I assume is the same as clearance) – see https://www.theguardian.com/commentisfree/2018/jan/19/europe-wake-up-drastic-financial-consequences-hard-brexit-netherlands-uk
Interesting. There is, of course, no discussion of microbusinesses – ‘kitchen table’ crafts, artists with day jobs, hobby electronics and so on.
It may well be that all of these micro-enterprises will see their EU sales extinguished – having friends in (of all things) Goth dollmaking and the associated fashion accessories – I can tell you that the customs payments abd the need to collect a parcel from (say) a USA dollmaker are very onerous and a real barrier to trade.
I would like to think that Amazon and Etsy will achieve something similar to the EU VAT settlement, which sidestepped a near-wipeout for microbusinesses with excessive registration and administrative burdens; or that there will be a concessionary rate for very small businesses; or that Amz and Etsy will be granted the right to aggregate a simplified charge the way that Spotify and Bandcamp do for the absurdly complex requirements of cross-border music royalties…
…But I think that microbusinesses will stop exporting altogether: £35 is a lot of money on a transaction of £100 or less. And that’s half the market gone, for these small and highly – specialist enterprises.
I think this trade will go
And I regret that
Mind you, goth dolls aren’t my thing
I stil have friends from my distant youth among the Goths!
I could also use the example of model trains: an uncle (alas, now deceased) in Toronto had a workshop in his basement, building live steam locomotives and rolling stock for the Ontario Steam Railway.
NAFTA made a huge difference to the trade in model railway parts and machinery, and the sale of completed rolling stock, across the 49th parallel.
Small objects, but some of them were eye-wateringly expensive; and ‘real’ businesses with one or more full-time employees grew out of these micro-enterprises.
‘Kitchen table’ businesses are rarely captured in statistics – we don’t really know the size of this sector – but they are economically significant because they are the seeds of ‘full-sized’ businesses.
Anyway, that’s anecdotal evidence from personal contacts in micro-businesses, and it’s nowhere near capturing their astonishing diversity – although we got a glimpse of it during the near-fiasco of the EU VAT reforms two or three years ago – and the UK has tens of thousands of them.
Easten Canada’s trade in model rolling stock was halted when the TSA started smashing train sets for spite: US customs were always slow and bureaucratic, but no worse; but Homeland Security and the TSA are unpleasant – and economically damaging – in ways that have obvious parallels with the nastier elements of our own Home Office today.
They are all quite fragile, and can easily be forced to stop trading by an ill-considered act of government; however, they fail silently – sometimes they just stop trading and revert to being a hobby; sometimes people who funded their tools and materials with a few sales are forced to scale back; and some people who depended on the trade to supplement their household income with it are forced to stop competely.
Mr Rees-Mogg, of course, will neither know nor care for any of it; he certainly cares nothing for larger businesses.
Perhaps someone should tell him that the tools for making and maintaining his top hat are made in Germany, and that the tiny companies which keep him so smartly dressed will go out of business when he cuts them off from exports which provide the hard currency they need to purchase their increasingly-expensive materials.
I entirely agree with you
In my hobby interest micro businesses and eBay are very important to all involved and real businesses do result
The idea that we restrict their markets is absurd. I know many export at present
HMRC are talking about commercial entries.
If you are using the integrators like UPS/DHL etc would be included. Parcelforce charge for the small stuff you mention from £8 to £13.50 depending on what it is.
That’s still a big cost to small business
And it will be vastly more prevalent
Sure and I wasn’t saying it wasn’t a cost (the integrators would take it into account when setting their tariffs). For that sort of trade it’s nowhere near the 35 quid HMRC are saying.
Here’s a link to the Norweigen post office, at the bottom you can play around and see what they charge https://www.posten.no/en/customs as they split vat & customs fees
I think we should ask all of these people pontificating about how much is does or does not cost to fill in a customs declaration: when was the last time you did it, how long did it take, and what did you import or export?
Look, here is the C88 with its 8 pages – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/374245/c88_1-8_.pdf
Simple, eh? Just imagine 200 million of those.
Now, for bonus marks, how long did it take to work out which commodity code to use? There is a simple guide here: https://www.trade-tariff.service.gov.uk/trade-tariff/sections Where, for example, there are five different categories for durum wheat. https://www.trade-tariff.service.gov.uk/trade-tariff/headings/1001
I am sure it becomes quite simple if you are importing and exporting the same thing day after day. But it is not so simple if you have a range of products that fall in different categories.
When I worked in HM Customs and Excise one of my jobs in the early 90’s was to visit businesses and explain how much easier inter EU trade was to become with the abolition of the C88 declarations for those businesses and they were delighted – as Richard says INTRASTAT is a doddle in comparison.
We have yet to hear from the Brexiters how filling in the C88 and associated paperwork is going to be the great freedom they promised before the vote – their campaign was based on falsehoods
I remember the C88 – Intrastat was a real win
Yesterday at 4.45 (I am an airfreight forwarder though so not surprising as I have little dealing with the EU as apart from special exceptions compound flying it as takes longer than a truck) it was a 6 line export entry (off today so why it was yesterday 🙂 ) took about 15 minutes in total once I split the FOB charges over the items to get the Customs value, shipper gave me the HS Codes as in fairness most who deal outside the EU do know them (Although do classify some myself).
The C88 or SAD is the legal document that the computer systems work off (under UCC they must be digital entries, handwritten not allowed) but notice on there is the box numbers (e.g. box 44 is additional info) which is what you need. A lot through our software we automate such as taking business EORI and addresses etc straight from our job files & a lot of codes as unchanging and specific to our company already in there. Cuts time down doing these things.
Speaking as a Vintner, HMRC are on the money – perhaps underestimating slightly.
Lucky you: wine’s a well-defined product with its own customs category and well-established customs procedures.
If you’re in that business, you’re already geared up for that and pricing it in.
Consider, for a moment, a craft toymaker making two or three items a month on a kitchen table: they’re not geared up for it, and they will be far less able to absorb the extra costs. Consider, also, that there are ‘rules of origin’ declarations for materials imported from outside the EU – silk, plastics, cotton – and a separate set of declarations for hardwood components. That’s onerous for any business, and exceeds the managerial capacity of most sole traders. Many of them will stop trading across borders and, as specialists often exist in niches that would be uneconomical without the Internet linking up a small customer base across a vast geographical area, these micro-enterprises will probably revert to being private hobbies, or cease altogether.
Then consider the case of a slightly larger business making custom animatronics for the film industry, with a sideline in powered medical prosthetics built on relationships with the physiotherapy teams in hospitals in England and (say) the Netherlands.
A purely theoretical case, of course: I just plucked it out of thin air.
Take a moment to imagine the rules-of-origin and environmental-conformance paperwork that will accompany each £35 customs declaration, for each and every ever-so-slightly different consignment.
You may well say that this is an absurdly specialised business, and there can’t be more than two or three of them: and you’d be right. But there are thousands of these niche consultancies and specialist designer-manufacturers in our country – Britain is particularly good at this – all of them as esoteric and improbable as that example, and they are staring down the barrel of a problem that isn’t just an extra cost; it might be literally unmanageable in a small and lightly-managed company.
If you are forced to merge with a competitor by the administrative burdens of exporting from an isolationist regime, you can; and I hope for your employees’ sake that you will if the alternative is scaling back or closing down.
But a more specialised enterprise may well have no comparable entity to merge into.
Many will simply cease trading, or relocate to Europe, exactly as the vehicle refinement and automotive ergonomics consultancies in the counties between London and the Midlands have begun to do.
All of them will be forced to scale back operations: no ‘headline’ closures, and no mass redundancies as if a motor manufacturer had gone; but, between them, they represent a double-digit contribution to the UK’s GDP, and it could easily be halved by Brexit.
They are also well-to-do small businessmen and women who should, as a benefit of their prosperity, be cultivating a discerning palate for a better class of wine than they might find in supermarkets and the High-Street wine shops.
I hope, for all of us, that they can still support your business.
Well said
And I agree with the analysis
A fair point; moreover we already have the template paperwork, not to mention systems. I also agree with what you have said.
Speaking as a Forwarder you might want to shop about a bit (unless of course what you are paying is an all in import processing fee as that would include more than just the entry).