Five month wait to register for VAT

Small companies are struggling to set up and expand because of delays of up to five months waiting for the taxman to issue VAT numbers.

Issuing the alert, a chartered accountant said that rather than registering most firms for VAT within two weeks, HMRC was now taking anywhere between 12 and 20 weeks.

Not only does this restrict a firm's capacity to trade, but it can also hike the cost of registering to £2,000, up from a few hundreds pounds a short time ago, said UHY Hacker Young.

Perhaps even more concerning is that HMRC does not perceive VAT registrants to be waiting too long, as it says more than 70% of applications are dealt with within two weeks.

However, the adviser said "every accountancy firm" it had spoken to was seeing delays ranging between three and five months, largely due to tax staff making anti-fraud checks.

"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," said Simon Newark, VAT partner at UHY Hacker Young.

"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."

During VAT backlogs in the past, individuals waiting to register were advised to consider issuing proforma invoices, on the condition that they will issue proper VAT invoices when they receive their number.

Those who send a proforma invoice to a client company should attach it with a covering letter stating the informal invoice/ document will precede a genuine VAT invoice.

In no circumstances should VAT be separately itemised on the invoice, as it is illegal for a business to charge VAT while not registered.

But any fees charged by a firm soon-to-be-registered for VAT should be enough to include the VAT liability that will be incurred once registration is complete.

"The backlog at HMRC has never been worse, despite assurances over the last few years that the issue was being resolved," Mr Newark said of the lastest hold-up for VAT registrants.

"These delays are causing serious problems for small businesses trying to start up in a tough business environment and are hampering wider economic recovery."

Use the free VAT calculator here.

Tuesday 6th Oct 2009
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