Tens of thousands of import and export businesses may face delays or blocks at the U.K. border if there’s a no-deal Brexit, as tax officials struggle to process a spike in applications for their new, simpler customs procedure.

Customs and value-added tax (VAT) declarations at the border are among the new compliance burdens businesses will face when the U.K. leaves the European Union. The tax office has introduced a new procedure to help alleviate border delays by reducing checks. But it needs businesses to apply for an economic operator registration and identification (EORI) number to qualify for a shorter border check.

The U.K. government has sent letters to 145,000 companies above the VAT threshold that still don’t have registration numbers. The tax office, Her Majesty’s Revenue and Customs, told Bloomberg Tax it identified another 100,000 that are below the threshold but should also apply.

But since the tax office takes about three working days to process each application, tax advisers warn the new system won’t give businesses the reprieve in time.

“Simplified procedures are a very good idea, and we’ve had them for quite a while. But it’s all come a bit too late and it’s now at a risk of being bunched up ahead of Brexit as the government tries to get all the infrastructure to implement this before Brexit,” said Simon Sutcliffe, indirect tax partner at accounting firm Blick Rothenberg.

A November 2018 report by the U.K.'s logistics industry body, the Chartered Institute of Procurement and Supply (CIPS), said a wait of between 10 and 30 minutes would lead to bankruptcies for 10 percent of its members.

At the same time, the government indicated “no-deal” Brexit plans would include turning parts of the U.K.'s highway leading to the port of Dover into a parking lot for lorries coming in from Europe. The port town on the southeast coast is expected to be massively hit with Brexit-related delays. It has no infrastructure to deal with congestion at the border.

The U.K. is due to exit the EU March 29. The new simplified process will take effect on the same day if the country fails to reach agreement on the terms of its future relationship with the EU. Other measures set to be introduced would address the Channel Tunnel and ferry routes from Europe, in a bid to reduce queues at ports.

The Irish border isn’t covered by the new scheme, but the U.K. government has promised to issue specific guidance for this border in the coming weeks.

Costly Delays

Crashing out of the EU single market without a deal means all trade between the U.K. and the EU will be governed by World Trade Organization rules. Reduced customs checks and lower tariffs, and the free movement of goods currently enjoyed by U.K. traders operating within the EU, will immediately end.

This could cause delays at U.K. borders as goods that previously were “waved through” would now need a customs declaration, said Marc Bunch, global trade partner at EY.

“While we welcome the government doing the best it can to provide some support, we can’t help but feel this should have been introduced a few months earlier,” he said.

The plan is probably going to benefit sophisticated traders who may end up not using it because it limits their options.

Guarantees

It’s not just the number of companies applying for this status that could cause HMRC an administrative headache, according to Sutcliffe.

Companies also have to provide collateral to HMRC to ensure they don’t misrepresent or altogether evade the duties that would need to be declared.

“They need to have a guarantee in place by March 29 as collateral for any amount of duty that might be lost between when an import enters the country, and when a full customs declaration is made,” he said.

These guarantees usually take 120 days to process and with 50 days left until the Brexit deadline, HMRC will need to implement the new system quickly if it’s to help companies avoid Brexit delays.

“I think they are looking at avoiding the guarantee. Otherwise it literally won’t work, because processing the guarantee will be quite a difficult process,” said EY’s Bunch.

The government will have to look at the possibility that this increases the risk of misreported or evaded import taxes, but this would be a trade-off, he explained.

The government will also need to provide detailed guidance on how traders will have to make a full declaration later, after the initial simplified declaration at the border, as this could also cause further delay and the risk of error, he added.

“This is a positive move from HMRC, but because Brexit is next month, there is a lot of rushing and this could mean that simple traders, who are the targets of this new scheme, will not have the bandwidth to use it,” Bunch said.

A spokesperson for HMRC said the tax authority “is helping businesses get prepared and, among other significant communications, has written 3 times to affected businesses, each time stepping up the advice and encouraging them to take action.”

He confirmed that while a guarantee is a requirement to use the new simplified procedure, businesses will have until June 30 to show that they have a guarantee in place to qualify. It is as yet unclear how they will ensure that companies don’t mis-declare customs and VAT when they fill full customs and tax declarations.

“The fact that the government has indicated that it is willing to wait until the end of June to confirm that companies have guarantees in place shows that HMRC is aware that the firms it is targeting with this piece of legislation may not be ready to use the simplified procedure on March 29, but this leaves a serious compliance issue,” said Brad Ashton, indirect tax partner at RSM UK.