Industry TalkRegular Industry Development Updates, Opinions and Talking Points relating to Manufacturing, the Supply Chain and Logistics.
Get Ready for CDS
UK businesses undertaking international trade are, right now, understandably focused on Brexit – what declaration documentation changes will be required and what additional resources will be needed to manage the transition? But while this is without doubt a significant event, it is no excuse for overlooking the biggest change occurring within HM Revenue & Customs (HMRC): namely the introduction of the new Customs Declaration Service (CDS).
From new data requirements and processes to the sheer challenge associated with getting to grips with new systems and software, the move to CDS is far from straightforward. Companies will need significant hand-holding to make the change – from education and training to the creation of Master Data files and support with real-time tariff information.
To date just one software company has been part of HMRC’s managed migration process to get pilot customers operational. Martin Meacock, Director, Product Management, Descartes, shares Descartes’ experience of working with the pilot migration and calls on companies to start CDS planning today.
New Era of Declaration
The migration to CDS from the existing Customs Handling of Import and Export Freight (CHIEF) has been scheduled for some time. And, although timelines and functionality have been amended in response to Brexit, with HMRC estimating that 4,200 companies made customs declarations on behalf of 140,000 businesses in 2017, the logistics of transitioning every business, in theory by March 2019, are challenging to say the least.
CDS is a dramatic shift from the previous way of working in CHIEF – from the way the customs declaration looks to the new data elements required. CDS is a Union Customs Code (UCC) compliant system, which means there has been a realignment of data: data that would have been at the declaration level is now at item level, and vice versa. There is also a significant amount of additional information that must be declared; under CDS every declaration is far more explicit.
For example, rather than using Additional Information code LIC99 – the blanket statement that no prohibitions or restrictions apply – under CDS it will be necessary to specify the relevant negation codes. This is a significant cultural change and will require organisations to actively consider negation code requirements for each declaration. There are also new data elements relating to customs valuation to define whether a transaction is, for example, a normal sale, sample or repair; as well as information regarding any relationship between buyer and seller and whether that influenced the declared price. This is all very new to organisations and will require anyone tasked with making declarations to undertake robust training to ensure they understand the implications for each specific business activity.
The other main change under CDS is a requirement to declare more information about the holders of certain authorisations or accounts, as well as providing related documents. For example, a company using a deferment account to pay customs taxes under CDS will require not only the six digit account number and a prefix letter previously required in CHIEF to justify whether it was the declarant’s or importer’s account, but also the details of the account owner plus the account guarantee details, including references. Essentially, companies can be required to declare six pieces of data rather than the two required with CHIEF.
However, while this will initially demand some additional data sourcing – possibly including questions to partners to determine this information – once achieved there is likely to be a degree of repetition of declaration data. This provides an opportunity to create a Master Data file that can be easily reused or used of a template declaration, thus streamlining the declaration process in the future. There is also an opportunity to leverage improved electronic data exchange with partners direct into a declaration to reduce manual rekeying, further streamlining processes and minimising errors.
Companies should also look for a system that includes real-time tariff data to support the declaration, including supporting information regarding the documents required with each tariff code. Despite an initial delay in HMRC being able to provide usable tariff data, this level of real-time declaration feedback will be invaluable as organisations start to use CDS – both for those manually making declarations and as part of an integration with an ERP system to automatically enrich and update Master Data as it is provided.
However, if organisations are to achieve this level of automation within CDS, they need to get started soon. The shift from CHIEF to CDS is a significant cultural change and while system providers have an essential role to play in enabling the migration and leveraging Master Data wherever possible to reduce the overhead, companies must quickly come to terms with the new data and process requirements. For some traders with a limited scope and repetitive declarations, the impact of CDS will be relatively small – it will simply be a question of understanding the new data demands and migrating systems. For brokers and forwarders, however, CDS is a big deal – and the sooner the business gets to grips with the new requirements the better.
Training and education are essential – as is access to test systems to ensure organisations understand the new processes and steps required. The good news is that there is a great deal of source information available. HMRC has provided documents, such as declaration completion guidance; while systems providers have created videos and other downloadable guides. But it is also essential to recognise that, as ever, CDS is a work in progress – ensuring the guidance is being provided by organisations that have expertise and experience in the actual implications of both the system transition and the new customs declaration requirements is essential.
Brexit is without doubt a major event and with dual running of CHIEF and CDS set likely to continue during 2019, it may be tempting to postpone CDS preparation. But given the sheer numbers of companies that must make the transition to CDS, the industry is going to be stretched. If companies don’t actively seek out migration support, education and training soon, there is a good chance that they will not be able to access the limited resource available required to minimise upheaval and to actively explore opportunities such as Master Data files and templating, as well as electronic data exchange with partners, to streamline the new declarations process.