HMRC explains VAT registration delays
HM Revenue & Customs (HMRC) has blamed the current delays on VAT registrations on a rise in registrations due to the Managed Service Companies legislation, the need to prevent abuse of the system, the consolidation of VAT offices and IT problems.
HMRC predicts that some improvement will be visible from the autumn, although it says it may be early 2008 before it meets its target and that high risk returns may continue to take around 50 days to process.
HMRC receives over 285,000 VAT registration applications each year and has a target of clearing complete and low risk applications in 14 days. It claims it is falling short of this target at present with the average time taken to complete an application being 38 days, although some small firms waiting for their registration have reported much longer delays.
Fraud
In a letter to the Association of Tax Technicians (ATT), Paul Gray, the chairman of HMRC, said: "Several factors are in play here. As you know, VAT registration is the entry point to Missing Trader Intra-Community (MTIC) and other serious fraud, which reduced VAT receipts by an estimated £2bn - £3bn in 2005/06. Obviously we must take steps to prevent such abuse of the VAT system. That includes pre-registration checks, which last year weeded out over 7000 applications. However, there is more for us to do to target our risk checks effectively and so reduce the number of queries needing to be referred back to applicants before their applications can be processed.
"Alongside that, we are consolidating VAT registration work into two sites at Wolverhampton and Grimsby. We have also seen a spike in application numbers over recent months following the Budget 2007 announcements on Managed Service Companies, and we have had some IT problems to resolve.
"These factors combined have led to the drop in service standards. We do understand the problems that delays in registration can cause, and we are working hard to improve processing times."
Mr Gray says that HMRC is tackling the problem by recruiting additional staff at Wolverhampton, devoting more existing staff to registration activity and they have now stabilised the IT problems.
He said:"We anticipate these steps will provide significant additional processing capacity and turn performance around. However the lead time for some changes, including training of new staff, means it will take time to see the improvement flowing through. We anticipate the upturn will be visible from the autumn."