20 June 2007
Delays in routine registrations for VAT are getting worse and are now typically taking three or four months, up from two months last year, and around two weeks a few years ago, says our experts. Delays of up to six months are common when anti-fraud checks are carried out as part of the clampdown on carousel fraud.
According to our VAT experts, it seems to take 30 days or more for registrations sent by post to even be opened by HMRC, and correspondence sent to them in support of applications is often lost, further complicating and delaying the registration process.
Our experts say that businesses waiting for a VAT registration number can face severe restrictions on their capacity to trade. For example, small businesses without a VAT number may not be able to get invoices paid, or property deals can fall through because the law requires for some types of property deal that the buyer is VAT registered and sellers are understandably unhappy about proceeding before HMRC have processed the paperwork.
Our experts also points out that the registration process, which used to cost just a few hundred pounds per business, now frequently costs between £1,000 and £2,000 in time costs simply because of the delays.
Simon Newark, VAT Partner, UHY Hacker Young, comments: “The situation just keeps getting worse. These delays are causing serious problems for businesses trying to abide by the rules, but if HMRC’s own poor management and inefficiencies are to blame, why should taxpayers bear the cost?”
“The clampdown on carousel fraud is a major cause of the problem, but carousel fraud is not about to go away, so HMRC needs to address long term management and staffing issues if the situation is ever going to improve.”
He adds: “The delay in VAT registrations and interminable checks on legitimate VAT repayments are causing serious cashflow problems, and many businesses have folded as a consequence.”
HMRC recently admitted that the situation will continue to deteriorate due to an additional 20,000 applications for VAT received from newly incorporated businesses as a result of the managed service companies legislation introduced in the Finance Bill 2007.
Rather shockingly HMRC has asked companies making VAT registrations not to bother phoning to check the progress as this may delay the application even further. Simon Newark says this is just adding salt to the wound.
He explains: “We need to constantly check they have got the paperwork, check they have received the supporting documents, check it is allocated to a case-worker, check the case-worker has understood the circumstances, endeavour to pre-empt the issuing of pointless requests for further information, it just goes on and on. The real irritation is that we do not want to do this, but have to in order to make sure that our client’s affairs are being dealt with properly and efficiently. Things sit in in-trays or get lost too often for us to take the risk.”
On top of this, Newry VAT registration office is closing due to cutbacks, which HMRC acknowledges will further exacerbate delays.
Simon Newark says: “The Complaints Unit is so inundated that it takes a month for them just to acknowledge a formal complaint and it is unable to give any indication of when the complaint will be dealt with. Laughably, HMRC’s official policy is now that VAT registration delays are no longer a complainable matter since all taxpayers are being equally disadvantaged and no-one can complain they are being unfairly treated!”
UHY Hacker Young has several clients who have suffered as a result of the delays in VAT registrations:
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New start up. A law firm start-up had to wait over three months to get a VAT number at more than double the usual cost. The firm could not get clients to pay invoices and suffered severe cashflow problems while waiting to be VAT registered.
- UK subsidiary of foreign company. The distribution contracts of a US parent company were to be transferred to a UK subsidiary, requiring a perfectly normal VAT registration. The goods were physically on sale in several UK retailers. HMRC launched anti-carousel fraud checks including an anti-fraud interview with the client. Process took six months and cost the company £5,000 in professional fees when the VAT registration could have been rubber-stamped by HMRC at the cost of a few hundred pounds.
- UK property development company. Application for VAT registration received by HMRC on April 3rd. Two months later UHY Hacker Young has not even received the expected property questionnaire requesting further information, so considerable further delays are anticipated. In the meantime, the company is unable to reclaim several million pounds of VAT incurred on a property purchase and HMRC are benefiting from the cashflow advantage at the cost to the taxpayer.
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