Date of issue: 4th September 2007

BUSINESSES LOSE OUT BECAUSE OF VAT REGISTRATION DELAYS

It appears that central Government targets over staffing levels at HM Revenue & Customs are causing widespread, and potentially costly, delays for legitimate businesses that are trying to obtain a VAT registration number.

Chartered accountants Clement Keys says it now takes up to 30 days before a new VAT application is checked, and if the officer processing the application has any concerns or needs further information, it could be another 12 weeks before a number is issued.

Unfortunately, the situation is likely to get worse before it gets better because, rather than recruiting extra staff to deal with the arrears, HM Revenue & Customs is planning to close the Newry VAT Registration Unit and share its workload among the Registration Units in Carmarthen, Grimsby and Wolverhampton, which are already operating at above capacity.

"Even a simple change of address notification or amendment to bank details is now taking over a month to process and, since we understand all variation work is being centralised at the Wolverhampton VAT Registration Unit rather than dealt with by the various regional offices, the delays are only set to increase," says director of Indirect Tax Services
Steven Simmonds.

While HM Revenue & Customs has acknowledged there are problems, it has not announced what steps it intends to take to remedy the situation.

"We do not believe these problems are down to the quality of staff employed, as they are generally dedicated to the task in hand but, rather, the result of central Government's policy to cut staffing costs," adds Mr Simmonds.

"What concerns us is that these delays are more than just an inconvenience, in they could make or break a fledgling business."

The example of Mr A Watts, a commercial electrical contractor who was required to be registered for VAT from May 1, helps highlight the problem.

His application was submitted on time and during May and June he issues invoices for £30,000. Working on a profit margin of 12%, he expects to make £3,800. Mr Watts advises his client that he has applied for VAT registration but, until he can provide a VAT registration number, they refuse to pay more than the net amount.

The VAT number is eventually received on July 31 and Mr Watts sends out VAT only invoices totalling £5,250 for the work carried out in May and June. Unfortunately, the client goes into liquidation before they settle the VAT only invoices and so does not pay the VAT due.

As a result, Mr Watts has to pay HM Revenue & Customs £4,468.06 in VAT out of the monies he has received, resulting in a net loss of £668.06. If the VAT number had been issued promptly, he would not be out of pocket!

"Since it is, technically, wrong for a business to issue an invoice showing VAT until its
VAT registration application has been accepted and a number issued, there is nothing
firms whose applications are being processed can do about the current situation," adds
Mr Simmonds.

"We would urge HM Revenue & Customs to consider implementing an interim solution to cut the backlog and help allay concerns, at least until such time as it is able to speed up the VAT registration application process."