Intrastat Simplification

Since the introduction of Intrastat in 1993, the European Commission has been looking for ways to simplify the procedure for collecting intra-EC trade statistics, to reduce the burdens it places on businesses. In the UK, HM Revenue and Customs (HMRC) statisticians have, over the last 20 or so years, tinkered with the system by removing some of the data requirements which were optional and by reducing the amount by value for which detailed statistics were collected, the percentage ‘coverage’. Currently, only about 20% of UK VAT registered businesses are required to provide detailed Intrastat data.

Statistical coverage

The ‘coverage’ has been managed by increasing or reducing the value threshold, below which businesses were exempt from providing detailed data. The coverage for dispatches has largely stayed the same at 97%, so that approximately the same number of businesses supply detailed Intrastat data now as did at the beginning. However for arrivals, coverage has slowly decreased from 97% to the current 93% by increasing the threshold value to £1.2 million, relieving thousands of businesses from the requirement to provide detailed arrivals data.

‘Single Flow’

Always lurking in the background over this period has been the idea of introducing a ‘Single Flow’ system, that is, collecting data from only one trade flow, most likely dispatches. A number of EU Member States have produced papers over the years in support of this idea which was attractive because producing dispatch data was seen as far easier to control than arrivals data, the latter requiring input from the seller of the goods.

SIMSTAT proposals

Now Eurostat, in the guise of SIMSTAT (Single Market Statistics), have put out proposals which will introduce a form of ‘Single Flow’, which will allow individual Member States to collect their own arrivals data on a unilateral basis. Only dispatch data would be transmitted to Eurostat.

The idea behind ‘Single Flow’ is that each Member State’s dispatches becomes the arrivals data in the destination Member State. It doesn’t take a genius to realise that, with the various submission times used by Member States (the UK is one of the better countries in submitting data to Eurostat within the allowed timescales!) and the differing interpretations used for commodity codes, introducing single flow could cause problems for the UK (and all statistics users) from both the timeliness and accuracy standpoints.

Timescales

Would the UK be happy to wait months before it could publish the full intra-EC trade statistics for trade with, say, Greece, Italy, or Spain? This is not to say the any of these countries are habitually late in transmitting data to Eurostat, but hopefully it demonstrates the potential danger of relying on someone else, perhaps running a different system, to provide your arrivals data.

 

Mirror statistics

Mirror statistics have always been the aim of Intrastat in bilateral trade where the dispatch report from one Member State’s precisely reflects the arrivals in another (and vice versa). Monthly asymmetry reports indicate just how often this simply does not happen, with wide variations in the reported commodity codes between country of consignment and destination. This is illustrated by one high value commodity, dispatched from the UK to another Member State, which was never reported in the receiving Member State, certainly not under the commodity code used by the UK business. This may simply have been due to a different interpretation of the commodity, or may have been completely omitted from the receiving Member State’s Intrastat arrivals report. Either way, the impact on ‘Single Flow’ is obvious. A receiving Member State, using the dispatches data from another, could find itself producing figures that bore no relation to its reality!

So, whilst the theory of ‘Single Flow’ looks pretty good on the surface, there are a number of pitfalls, regularly fallen into with the current system, which have the potential to damage statistical reports.

Additional data

The current proposal from SIMSTAT will almost certainly require additional dispatch data to be reported to cope with the requirements of each Member State, some of which collect significantly more data than the UK. To meet the requirements of SIMSTAT’s proposal it is likely that UK businesses, in addition to the existing data, would have to report the VAT number of the purchasing business and possibly Mode of Transport and the country of origin, at least.  The UK dropped the last two a long time ago!

Aggregated data

In addition to these potential extra requirements, aggregation of data (i.e. consolidating data into a single line) would be much more difficult. HMRC estimate that the number of line of data submitted would increase ‘by a factor of at least five and possibly as much as nine’.

HMRC options

HMRC are putting forward three proposals for consideration and you are encouraged to send them your views before 8 April 2014.

Option 1: ‘Single Flow’ - The SIMSTAT proposal, which would collect dispatches data and include additional data fields + the possibility of no arrivals data being submitted.

Option 2: ‘Single Flow Plus’ - The SIMSTAT proposal (including the additional data fields) with the possibility of arrivals coverage being reduced to exclude considerably more businesses that at present, but at a level that would protect the integrity of UK trade statistics.

Option 3: ‘As you were… almost’ – Reducing the coverage of trade by value for ‘either or both’ arrivals and dispatches. This proposal obviously has a number of variables and might see a reduction in percentage coverage from 93% for arrivals and 95% for dispatches down, in various stages, to 90% for both. HMRC’s headline illustration pitches both arrivals and dispatches at 93%which they estimate would result in some 8,500 business falling below the exemption threshold, £1.2 million for arrivals (as now) and a projected £675,000 for dispatches.

Economic Impact

Each of these proposals has its own impact, economically, individually and on business. The costs of implementation and the benefits vary and are detailed in the HMRC proposal document. However businesses should consider that the first two options could lead to loss of commodity code and country data, may impact on the overall quality of data and could lead to delays in publishing data. Even if you are not a user of statistics, any of these could impact on your business if they affect the workings of government in, say the Office for National Statistics (ONS).

Eurostat response

When asked to respond to the idea that Eurostat were advocating ‘Single Flow’ again, a source in Eurostat expressed disappointment in the way that HMRC had presented the SIMSTAT proposals, maintaining that the proposals ­did not mean  ‘Single Flow’ with the ‘mechanical replacement of arrivals with mirror dispatches’. Notwithstanding that, you won’t find many who disagree that the data exchange system (‘Single Flow’ by any other name) is Eurostat’s preferred option.

Dispatches would certainly be reinforced by additional data and it is expected that the additional data could be used to produce arrivals data; however it would still be up to Member States to choose which data to be reported.  The only additional mandatory data looks like being the partner VAT number, and this should be available on any invoice. Any VAT number can be checked for accuracy on www.uktradeinfo.co or on the EU website.

HMRC response

HMRC admit that there is quite a lot yet to be worked out, particularly in the areas of timeliness and quality. They are concerned that basing the UK’s trade statistics on a ‘Single Flow’ type of system would result in asymmetries significantly skewing UK trade data to the extent that the Balance of Payments is affected. A source in HMRC also considers that, apart from timeliness and quality concerns it considers the collection of the partner VAT number as an ‘additional burden’ on business.

As yet, HMRC haven’t worked out how to deal with late data, but agree that part of the SIMSTAT proposal will be to work out a timetable of data exchange between Member States. Given the performance of some Member States, this looks like a fairly intractable problem!

HMRC consider the second option (above) as the most burdensome. However additional concerns with this option, as with option 1. (above), are that the quality of the statistics could be affected unless a reasonable (unspecified) coverage of arrivals data was collected. The current belief is that 90% coverage of arrivals data is achievable and would not result in serious loss of country or commodity data.

HMRC will not commit itself to a ‘preferred option’, however it has pointed out that option 3. (above) is far and away the least burdensome and carries added benefits, particularly to SMEs. Neither would it require any changes to IT systems or to methodologies.

Conclusions

Clearly, if you currently only submit arrivals data, option 1 is going to be your likely choice, particularly if you do not use statistics. It’s unclear why anyone should consider option 2, given that it will increase the statistical burden on your business. However, if your systems are set up to cope with the current requirements of Intrastat, you may consider option 3 as the ‘do nothing’ option.

Whatever your views, HMRC are keen for all businesses involved in intra-EC trade to complete the consultation document to give them any idea of the mood of business. If you don’t let HMRC know your views, you can hardly complain if the wrong option for you is chosen.

You can find the detailed consultation document here.

Website links:

https://www.gov.uk/government/consultations/simplification-of-intrastat 

 

Written on 20th March 2014 by Gavin Inglis, S&H LLP Associate 

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