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VAT registration delays - new firms "fighting for survival"

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Start-up businesses are struggling to set up and expand because of delays of between three and five months waiting for VAT numbers, according to UHY Hacker Young, the national accountancy group. HM Revenue & Customs is supposed to complete most VAT registrations within two weeks.

According to accountancy group, the delays are due to administrative backlogs as HM Revenue & Customs (HMRC) carries out anti-fraud checks as part of its clampdown on carousel fraud and inefficiencies in processing applications.

UHY Hacker Young says that businesses waiting for VAT numbers can face severe restrictions on their capacity to trade. For example, small businesses without VAT numbers may not be able to get invoices paid, and property deals can collapse because the law requires that the buyer is VAT registered for some types of property transactions.

The accountancy firm 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.

In July 2007, we reported that VAT registration delays were causing chaos - this latest report suggests that little has changed in the interim period.

Registration delays - HMRC data paints a healthier picture

According to UHY Hacker Young, the delays in obtaining VAT numbers experienced by taxpayers and their advisers are at odds with HMRC’s own data on the length of time it takes to process applications. HMRC claims that over 70% of VAT registrations are processed in two weeks, but UHY Hacker Young says that every accountancy firm it speaks to is typically experiencing delays of between three and five months.

UHY says that this discrepancy could be if HMRC only counts the time it takes to complete the actual administration after it has received all the requested information. It therefore ignores the several months of checking and investigation beforehand, which forms part of the anti-fraud process, when compiling its data.

Simon Newark, VAT Partner at the accountancy group, comments: “The backlog at HMRC has never been worse, despite assurances over the last few years that the issue was being resolved. These delays are causing serious problems for small businesses trying to start up in a tough business environment and are hampering wider economic recovery.”

“Fraud will always be an issue, particularly during a recession, but if HMRC’s own poor management and inefficiencies are to blame for delays, why should taxpayers bear the cost? HMRC needs to streamline its processes and get a grip on its staffing issues as a matter of urgency.”

He adds: “The HMRC staff conducting the fraud checks routinely disregard information contained with the applications and demand the same documents, which are often completely irrelevant, again and again. When I made a formal complaint I was told that because all taxpayers were being equally disadvantaged, no individual taxpayer had grounds to complain that he was being unfairly treated!”

UHY points out that a business cannot pay VAT over to HMRC without obtaining a VAT number and filing VAT returns. This means that the anti-fraud checks themselves are actually delaying the collection of VAT by HMRC and probably increasing the risk of VAT going astray.

Posted October 1, 2009

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