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The new customs system being developed by HM Revenue and Customs should be ready for a no-deal Brexit, a report has found.

A National Audit Office progress report on HMRC’s new Customs Declaration Service (CDS), which is being developed to replace is existing Customs Handling of Import and Export Freight (CHIEF) system, found HMRC had mitigated some of the risks identified in its last report in July 2017.

The new system has been in development since 2013/14, but after the UK voted to leave the EU, it became clear the customs system would need to be able to handle an estimated 255 million declarations a year post-Brexit – almost five times more than the 55 million made by traders in 2015.

As a result, HMRC has accelerated work on its contingency plans for handling customs declarations in the event of a “no-deal” Brexit next March, the NAO found. It said that if this work was successfully completed, HMRC would have the system capacity to handle customs declarations no matter what the outcome of exit negotiations between the UK and the EU.

In addition, the tax and excise agency has also developed contingency plans that could be used if the new system, which is being rolled out from August until next January, does not perform as planned. HMRC permanent secretary Jon Thompson told MPs on the Public Accounts Committee that options included running CHIEF in tandem with CDS while transitioning between the two systems, refreshing the CHIEF IT infrastructure so it can be scaled to cope with processing a higher volume of customs declarations, and exploring other technology and process changes that may be required.

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Other risks in the project have reduced, with HMRC securing all the funding needed to cover the £270m cost of the CDS project and reducing the scope of what the service will do from August, to instead roll out updates later this year.

However, the update also stated that significant challenges remained and the success of wider customs preparations would involve many other dependent systems and processes at the border.

Auditors found HMRC has started to engage with 150,000 traders that import and export goods outside of the EU but has not yet started the same communications with the at least 145,000 EU-only traders who may need to make customs declarations after March 2019, dependent on the EU exit deal.

Auditor general Amyas Morse said that developing the CDS system to a tight timetable “remains a major challenge”.

He added: “However, HMRC has made progress in developing its contingency plans, and has reduced the risk of it not having an operational system in place next March. Inevitably risks remain, and the next few months are crucial if HMRC is to make this a success.”

Responding to the report, an HMRC spokeswoman said the department remained on track to deliver the CDS by January 2019 and was building it to manage any potential increase in customs declarations following the UK’s exit from the EU.

“The timetable remains tight but we are actively managing potential risks and will continue to operate the current service (CHIEF) in tandem with CDS during the transition from one system to the other, providing additional assurance,” she added.