Director general, Robert Keen said: "We share the Committee's concern that HMRC does not yet have the necessary funding and resources to produce the infrastructure that will be required to facilitate Customs processes post-Brexit". The report warns Government must do more to work with businesses and ensure contingency option in place well before January 2019.
The report calls on the Treasury, which is now putting together chancellor Philip Hammond's Budget speech for next week, to ensure there is funding in place for these contingency options.
Westminster's Public Accounts Committee warned it would be "catastrophe" if the system was not ready in time and there was no viable fall-back option in place.
"In 2015, around 55m customs declarations were made by 141,000 traders". This is a tight timetable at the best of times.
Meg Hillier, the Labour chair of the committee, said HMRC should be "banging on the doors of the Treasury" in order to secure the funding it needs to get the system operational in time to deal with the change.
Meg Hillier, PAC chair and Labour MP, said: "Failure to have a viable customs system in place before the UK's planned exit from the European Union would wreak havoc for United Kingdom business, trade and our global reputation". Confidence would collapse amid the potentially catastrophic effects.
A Government spokesperson said: "The Customs Declaration Service (CDS) is on track for delivery by January 2019 and has the capacity to deal with a significant increase in customs declarations at the border".
'This is deeply worrying.
"HMRC must press the case to secure this funding now and ensure that, if other plans fail, customs will be fit for objective".
"This is a programme of national importance that could have a huge reputational impact for the United Kingdom if it is not delivered successfully". It says "delay is not an option".
She said HMRC needed a relatively small sum to upgrade the current system but had been told by HMRC it was merely "in conversation" over upgrade costs.
The report also calls for HMRC to improve its engagement with traders and keep them abreast of the CDS timeline; to "urgently prioritise and make hard decisions" with regard to its "unsustainable" amount of transformation projects; and to report back to the PAC on progress made by March 2018.
It also urged HMRC to ensure that the CDS system and the CHIEF contingency option are capable of managing 255m customs declarations every year, while providing the flexibility to meet the wider challenges of an integrated customs and trade system for the United Kingdom, such as managing changes to tariffs, free trade agreements and global trade quotas.
But Prime Minister Theresa May's spokesman said the customs service was "on track" to be ready in time.