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Fast track your VAT

Applying for VAT registration is painful and goes against government policy to cut red tape, argues Bishopsgate Financial CFO Stephen Hay

IF I CAN FAST-TRACK a passport application for £128 (4 Hours) or £103 (1 week) why can’t I fast-track the VAT application process?

HM Revenue & Customs’ current guidelines make the following claims on getting a new VAT number: “It currently takes around a month for HM Revenue & Customs (HMRC) to process applications for VAT registration, although it can take longer if they need to carry out additional checks.”

“HMRC aims to process 70 per cent of applications within 10 working days and most are processed within a month. Sometimes, however, HMRC will carry out additional checks on an application. You will be notified if this is the case with your application. These additional checks are usually completed within three months.” In my experience (and our accountant’s experience) the process takes much, much longer.

My company applied for VAT registration in June 2009 and finally received a VAT number on 15 December 2009, backdated to 1 April 2009. During this six month period we received numerous letters and phone calls requesting more and more information of proof of trading etc. The whole process seemed so protracted, further hindered by the fact that HMRC apparently weren’t allowed to use email to communicate.

Invoicing confusion

By then we had invoiced £123,600 with VAT, but without a VAT number. This takes some explaining to the clients, as we have to charge for the VAT by increasing prices by the VAT amount and once the VAT number is received reissue the invoices with VAT included. That may need a re-read as yes it is confusing, time consuming and unprofessional.

This ‘practice’ is detailed on the HMRC website: “Until you receive your VAT registration number you must not charge VAT, or show VAT on your invoices. To make sure that you do not lose income in the period after you applied for VAT registration but before you receive your VAT registration number, you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.

“Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will make sure that your VAT-registered customers may reclaim the VAT that they have paid.”

So in essence a new start-up needs to increase its prices by 20% until HMRC issue the VAT number. Not a great way to win over new customers and suppliers.

VAT reality

The reality is that VAT is not actually paid to the tax man until months later, thus impacting the ‘National Debt’. The time and effort involved in securing a VAT number via this drawn out, inefficient process can be soul destroying for a start-up business.

I think it is also important to point out that this was for a business whose directors have no ‘prior’, and four years later we have revenues now approaching £10m p.a..

Why all the red tape and barriers to setting up a new business? Surely it’s clear to all that we need to energise new start-ups by making such registration processes as simple, quick and efficient as possible?

In 2011 the prime minister launched a war on red tape that was supposed to signal a crackdown on Whitehall bureaucrats “concocting ridiculous rules and regulations that make life impossible for small firms”.

“We have the most almighty job to do,” the prime minister told delegates at his party’s spring conference in Cardiff in 2011. “Because for over a decade in this country the enemies of enterprise have had their way. Taxing, regulating, smothering, crushing, getting in the way.”

So why two years on from launching his war on red tape is the UK no closer to a Vat fastrack?

And it’s not just VAT red tape. This month the government has again pledged to help the UK to become the best place to start and grow a business. This is yet again in response to issues raised by companies, including through the Red Tape Challenge, in which the government has committed to scrapping or substantially reducing the current 3,000 regulations…

“For small firms, less time spent filling in forms means more time planning the next project, winning the next contract or looking for the next young recruit,” said business minister Michael Fallon. Yes minister – hear, hear, now please actually do something about it.

Stephen Hay is CFO of Bishopsgate Financial, a leading consultancy that specialises in business transformation in the banking sector

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