VAT Registration delays causing chaos

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 VAT 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 chartered accountants, UHY Hacker Young, 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.

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.

Simon Newark, VAT Partner told Bytestart today 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. Whereas previously, new clients could expect to wait a couple of weeks to be VAT registered - they can now expect to wait 3 to 4 months.

Mr Neward said: “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!”