I'm actually in denial it's the new year.  It can't really have passed by that quickly. They've missed out on some of the months. They must have done. Was there an April? And what about October, I don't remember there being an October?

I do remember The Rise of the Silver Surfer, the disappearance of Madeline, demolishing the garden shed, and a few other things really got my goat during the year, but here's my top ten....

1. Gordon Brown
   Continuing to annoy me. He became Prime Minister, bottled an election, quietly signed the Lisbon treaty passing further powers away to the EU, promised a government of "all the talents" then lost the personal details of 25million people, had a party funding scandal, pledged an end to spin while in the same breath claiming to have reduced the rate of corporation tax (not quite, there was an increase for small companies - the so called backbone of the economy). The Tories say he's the wrong man, but of course they would, wouldn't they! 
2. Carbon footprint
   In 2007 our carbon footprints became big business. The Chancellor has been rubbing his hands in glee at the prospect of being able to introduce new types of taxes, and companies have been dressing in floral prints designed by their marketers. This latest fashion of "social responsibility" is being paraded on the catwalk in front of us mug consumers. Meanwhile there seems to be a whole body of evidence accumulating to suggest man-made C02 plays only a minor, insignificant role in climate change. When trying to finds the facts on Google I found instead near Freudian hysteria and contributions from people who seem to think they're in a movie. The consequences of man-made climate change, wrote one budding actor, will be "worse, much much worse......eventual extinction".
3. Nobel Peace Prize
   In keeping with "the year of the footprint" this year the Nobel Prize for Peace was shared between an organisation and Al Gore. They each get half a prize " for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change".  Why did Al Gore get a prize for his video? There's even doubts it was actually true, like, get down to the bookies - there may yet be a chance of Jeremy Clarkson winning in 2008 for his continued work on Top Gear.
4. Virgin Media
   Launched on February 14th, V-Day. Steve Burch, CEO of NTL, was quoted at the time as saying "Virgin Media will shake up the market by bringing the Virgin traditions of value-for-money, brilliant customer service and innovation to the world of entertainment and communications."  However, a bungled negotiation with BSkyB led to the loss of popular channels such as Sky 1, Sky News, Sky 2, Sky Travel, Sky 3.... 40,000 customers fled in the first three months, perhaps they knew the virgin traditions of "value for money, brilliant customer service and innovation" are a branding screen thrown up to hide a normal company. They don't mean anything. Did we see our TV charges reduce with less channels? No. Did we see phone charges increase? Yes Sir we did!
5. Windows Vista
   The biggest technological disappointment of 2007 despite an R&D bill of £10bn, Windows Vista, actually seems to be an operating system designed for teenagers to help organise their media files. It seems a ridiculous use of hardware to spend on unnecessarily indexing every file and on fancy graphics like transparency which don't add anything and, in fact,  hamper the experience.  First set of tasks to do if you're a consumer stuck with Vista and you can't return it - turn off windows sidebar, un-tick all files in Indexing options, change update settings, change control panel to classic view, change start menu to classic, and yes, download open office as you won't be able to use Excel. 
6. HMRC
   It doesn't look like we'll ever see a video podcast or a YouTube channel explaining the ongoing delays to VAT applications which continued throughout 2007. The HMRC website, now in 2008, still displays the same notice since 2006, "Please be aware we are currently experiencing processing delays with both paper and online applications".  Applications can take up to six months to process, clearly inconveniencing small business. No practical guidance is given by HMRC on what to do during this lengthy application period. They just don't care, they're opening premise - "everyone's a crook" - guides all policy.
7. Tesco
   What's Tesco becoming? On my last visit of 2007 to Tesco Express in Port Solent my conclusion was a village. It has it's own pharmacy, a Costa Coffee, a supermarket, what appears to be an Argos, a department store, a Krispy Kreme Doughnut, and an opticians. The trouble is the supermarket is a mess, boxes on the ground, empty shelves, off products and staff pushing cages everywhere. You have to literally dodge the cages because they can't see what's in front when they're pushing. And there are plans to add a dentist practice to this village. I'd actually prefer if they brought in another supermarket chain, a company that knows how to run a supermarket, because Tesco seem to have forgotten.
8. Celebrity Rehab
   Britney Spears, Amy Winehouse, Pete Doherty, Lyndsay Lohan et al, all seemingly gone off the rails. They go into rehab, they come out, they get drunk or spaced, get pictured without their underwear, get spaced, go into rehab, and it's all front page news. I'm just not intersted. Why can't they just get a grip?
9. Open Season on the Games
   The 2012 logo was launched on Monday the 4th of  June and was almost instantly and unanimously derided (including by me). The jagged, graffiti design was likened to Lisa Simpson performing a lewd sex act. Within three days almost 50,000 people signed an online petition calling for the logo to be scrapped, an animated version had to be pulled from broadcast over fears the effects cause epileptic seizure. It was open season on "the Games", all year in fact, the underlying theme being, it's being run by a bunch of incompetents who don't know what they're doing. It'll be wrong and over budget. Guffaw! How could they forget the VAT? See point six above on HMRC, who in the end decided they couldn't register.
10. Big Brother
    Following the celebrity Big Brother race row, the ugly bullying of Shilpa Shetty, and Carphone Warehouse withdrawing sponsorship for the programme, we quietly hoped 2007 would be the last year of Big Brother. But no, it's continued....

Happy New Year and God bless for 2008

A working Mum trying to start her own business by night with an investment of sweat capital has received a fairly typical response from HMRC. A response which doesn't quite meet the aspirations of Tony Blair who has been quoted to say  "The public ... should receive, high quality service from the Government". 

The entrepreneurial Mum incorporated and registered voluntarily for VAT last year. Within a couple of months of registration Customs decide to deregister her VAT number as they were concerned about risks of VAT fraud from mobile phone and computer chip traders, even though the Mum is starting a translation service and a consultancy for ISO accreditation.

She wrote to HMRC on the 12th December to advise them she needed to retain the number. She received a response from HMRC in the first week of March. In this response the Customs Officer from Staines says "I have just received a letter from you dated 12th December. This letter was logged into our mail system on the 23rd February, 2007. Although in this letter you ask me to consider not deregistering your company for VAT I am afraid that the deregistration process was concluded on the 12th December.....I cannot understand the recent arrival of your letter. "

No advise is given to the Mum about how she should now account for any transactions which have occurred since the 12th December. Does she now embarrassingly return to clients and issue them with a VAT only credit note with the explanation she has been deregistered (this will be great for repeat business) - or does she just keep the VAT? No indication is given in the letter as to why her letter wasn't logged on to the system until the end of February, almost three months later, or whether it's going to be investigated to understand if the system is flawed and cannot therefore by its nature deliver a "high quality service".

Isn't it nice to see small business being supported by the Government!

I am intrigued by the contrast between Chancellor Gordon Browns Pre Budget and the Irish Budget announced by Irelands Finance Minister, Brian Cowen. On the one hand we have an incredibly pro business budget which is bound to encourage entrepreneurs, small business and equity investment in the Irish economy. 

By comparison in the UK small business and entrepreneurs are continuing to be snuffed out. Managed service companies (MCS's) for instance, are deemed to only "disguise employment" and are subject to increased measures in the Pre-Budget announcement. This includes enabling the recovery of "outstanding" tax and NI contributions from the companies who engaged the MCS. An MCS could be a professional who has decided to set up a consultancy practice. This is a "tax motivated incorporation" rather than entrepreneurship and small business development vital for UK economic growth, i.e. the person isn't really a consultant she's a deemed employee.

It is actually becoming prohibitive to start a business in the UK to the point  where, economically, you are actually better off staying in full time employment. Why would you want to take on the financial risk within a burdensome, complicated tax framework where your government assume the worst about you, and in any case you can be waiting up to six months for VAT registration without any guidance about accounting for VAT in that period.

What's the alternative, well moving your business out of the UK and incorporating it in Ireland where small business and entrepreneurs can be assured of support is looking a lot more attractive.

The Telegraph today reported HMRC staff would have to use their annual leave to attend their Christmas lunch.  I had actually heard the story yesterday on local radio and had been wondering since how a lunch could last so long that you would have to take annual leave to enjoy it.

Perhaps its an indication that HMRC are working in a different time continuum. Those waiting months for VAT registration numbers might be quick to agree. It's a time zone where everything takes longer or slows down. A process that should take a few weeks, like VAT registration, stretches out to eternity, and a lunch that should take a couple of hours needs a holiday.

Interestingly, the Telegraph article also quotes an HMRC spokeperson as saying "it is vital that we continue to provide a good level of service to taxpayers and claimants." 

I had to read the sentence twice, did it really say continue?

The automated voice recording on the HMRC National Advice Line says you can also visit the HMRC "internet website".

So they have their website on the internet eh?

Hmmm. I wonder if it starts with "doubleu doubleu doubleu"?

If you purchased something on the internet you needed to return, would you be reassured by a customer service policy which stated "You should not contact .... [the returns] office... to see how your....[return].... is progressing. As you can appreciate, dealing with constant phone calls can further delay the processing time"?

This service policy would suggest a number of things. (1) customer care is not valued (2) the number of returns is high (3) the company doesn't have an effective system.

In fact, I think this policy [authored by HMRC]  is a swing too far for the plain English campaign. This policy quite simply translates as "f### off".

Speaking in 2003, John Healy, the Treasury Minister for Customs, stated "Customs is also an ancient service, with legal roots stretching back to the 11th Century". To the cynical, tracing the history of HMRC back to the dark ages might confirm their suspicions about the role and function of the organisation. Indeed, when you look at the very narrow definition of it's objectives you might be forgiven for assuming they've never been altered. They simply state: "We are here to ensure that the correct tax is paid at the right time". The powers HMRC use and apply are based on this one simple objective.

Defined in this way, this Government Department, is able to detach itself from both circumstance and consequence. Rules can be blindly applied as they are not limited by any economic context. This may also go some way in explaining why there does not exist a Taxpayers charter. There is no downward pressure from the organisations goals to have one. Although it's been discussed at the Consultative Committee Meetings it seems to have been reduced to a carry forward meeting minute. It needs further thought.

Suppose we added one more aim to their objectives, and this was "To not inhibit or impede economic growth."  This goal might accomplish a number of things, including a need by HMRC to understand the wider economic impact of applying it's powers.

Let's look at an example. In it's current form it is perfectly permissible for a company to have to wait over four months to be VAT registered. If the registration process were governed by an objective to not impede economic growth this timeframe would be unacceptable. I can almost hear Donald Trump exclaim,  "It's a disaster".  The organisational structure and practices would have to change so that the process be completed in an acceptable period, a period to which the organisation is accountable.

At the moment there is none. Guidance booklets from HMRC suggest the registration process to be three weeks, however, owing to their single objective,  and the lack of a tax payers charter, they can legitimately take as long as they like. There will be some reason or power they can apply which supersedes any prior commitment.  At the moment, this reason is Missing Trader Intra-Community (MTIC) VAT fraud estimated to cost the Exchequer 0.6% of total Government revenue, almost the same still being lost through tobacco smuggling, or estimated to be lost in identity fraud. The spin put on MTIC fraud is that it diverts vital funding intended for public services, like hospitals and schools, on which we all rely.

I say "spin" as we should not forget these losses are less than the £3.3billion in unpaid taxes avoided by over half a million illegal workers, and less than the amount the Government has spend on the Iraq war. It's a spin, should it be used to lower standards of public service? Long, undue delays in VAT registration are explained away as part of Customs strategy  to combat MTIC fraud.  This, for some reason, seems to make it okay.

Lets look at another example. HMRC have redeployed an additional six hundred staff to help with validating the VAT repayment returns of companies trading in industries tainted with MTIC fraud. When we look at the numbers it just doesn't seem to stack up. The Department processes approximately 170,000 repayment returns per annum. Of these, only a small minority relate to returns submitted by companies trading in tainted markets. If this small minority were 5% then there would be some 8,500 returns per year to apply increased validation to.

With these numbers, each repayment return would have one Customs Officer working full time on it for four weeks. You would be forgiven for concluding , with this level of resource, returns would be validated quickly. This is not the case. In a letter leaked to me, from a reader, a senior Customs Officer writes, "HMRC is under no statutory obligation to complete these verifications within any fixed timeframe" and further "the case officer will normally provide at least monthly updates", which would suggest the process is going to be a siege.

Cashflows of legitimate businesses are squeezed as Customs retain their VAT repayments as part of their strategy to combat MTIC fraud. This makes it okay. Where the single objective of the organisation is "to ensure the correct tax is paid at the right time", it becomes acceptable to implement a strategy to "disrupt.... all points in the supply chains". The collateral damage is not considered.

Are these the "legal roots stretching back to the 11th Century"?

Ok, so where were we?

To recap, I was registering a start-up business for VAT. The application was submitted online on the 4th of July. The application prompted a request for further information, the majority of which just does not apply to a home business. I replied to the answers and posted my blog on the subject towards the end of August.

• VAT Registration (Part 2)
• VAT Registration

The next contact I have with Customs & Excise consists of a business card put through my letterbox. A meeting hadn't been arranged with me. They had seemingly "given it a whirl" on the off chance I might be in.

I held the card in my hand thinking whether this was indeed a good use of tax payers money. It must have taken two staff a round trip of three hours to make the visit. That makes six hours or almost a day, which could have been avoided with a simple call beforehand.

My eyes linger on the card before I turn it over. There is a note on the reverse asking me to call. I do. A meeting is arranged for Tuesday, the following week, the 27th of September, at "morning".

I listen to James O'Brien on LBC while I wait. Occasionally, I look through the front window to see if anyone is there. Then I see a convertible pull up, park outside next doors, raise the roof, and two Customs Officers get out.

They explain that HMRC need to apply more detailed verification to businesses registering for VAT owing to abuse of the system, an abuse that has led to substantial losses for the UK exchequer. They are well mannered. I show them samples of some products I am looking to import from the Far East. One of them is a redesign of a popular Asian product I am planning to manufacture. They seem satisfied and exclaim, "you're obviously not the type of company we're looking for". All in all they stay about twenty minutes.

The application is referred back to the Registration Unit at Deansgate. I feel assured the VAT number will be issued, finally, after three months. Three weeks later, on the 23rd October, an HMRC brown envelope arrives through the letter box.

Instead of the expected VAT certificate there is an "Advice of Non-Registration". The letter says "for the time being you will not be registered". The letter contains a table of reasons an application cannot be processed.

There is an X against "Your application form has failed pre-registration checks, please contact the office for further information".

My first thought was of customer service. Wouldn't it have been helpful to include the "further information" with the letter? Instead, I have to write to them and request it, they will send it, then I have to respond to it and ask them to reconsider the application. Was this the most efficient or effective way to do this? If there had been other questions couldn't the visiting officers have asked them? I can foresee another six to eight weeks delay.

Interestingly this is the first letter, which doesn't give advice about invoicing. Previously you are reminded to add VAT to the sales price and tell the customer you will sort him out with a tax invoice later. Having done so, and being advised of non-registration, what do you now tell the customer? If you are appealing the decision do you still need to follow this process? My first thought was of customer service, but the letter offers no help.

To say I am baffled as to how a VAT application can take four months is an understatement. What can possibly take so long? Whatever it is, it can't be good news for UK entrepreneurs.

The unwieldly tool HMRC applies to combat fraud partly creates the problem they try to solve. In order to VAT register a company, businesses are being encouraged, or should I say being cornered into, buying already registered companies, which are dormant, or being liquidated or are worth nothing. Or they register companies with different trade classifications, such as a plumber, and then change the classification after being registered.

Where the alternative is to wait over four months for an application to be processed I can understand why business owners do this. Is it wrong? You know, I don't think it is anymore. Why should new, legitimate businesses in the UK be choked with red tape and be criminalized?

Was it really Tony Blair who said we ".. should receive, high quality service from the Government"?

On the 4th July I applied online for a VAT registration number for a small company. The company, a home business, is estimated to turnover no more than £75K.

In the application the activities of the business were described as "General trade of hardware and previously owned goods to end users and resellers."

The application prompted an enquiry for further information. Bearing in mind the size and scale of the business, the questions from the VAT office included (these were some of the best)

The process of starting a business is being stifled even further by having to wait in excess of three months for a company to be VAT registered. During that time you have to answer queries which can't be regarded as sensible and which could have been avoided with an effective risk based approach, an improved application form and some intelligence applied to the process. Instead, it seems as if every application is being treated as a fraudulent application.

In this example: the small company applies for registration on the 4th July. On the 26th August HMRC write to say it may take an additional 12 weeks, bringing total time taken to almost five months. During that time I have to increase my price to include VAT and tell customers I will sort them out with a tax invoice later. Incredible.

If you are registering a company for VAT in the UK be sure to factor in a considerable amount of idle time while you wait. In the meantime what can you expect? Well, HMRC ask you to add VAT to your sales price and tell your customer you'll sort him out later with a tax invoice.  

Yeah right! If your supplier asked you to do that what would you think? i know what I'd do if I was the customer.

What can possibly take so long? You're not likely to find out. HMRC, a public service body, instructs (their emphasis) "You should not contact either this office or the National Advice Service to see how your application is progressing. As you may appreciate, dealing with constant phone enquiries can further delay the processing time."

This letter, of course, isn't at all consistent with the information on the HMRC website. There in the FAQ's section under "When will I get my VAT registration number?" it says "...it may take up to 8 weeks to complete the registration process as we are now carrying out a wider range of checks on every application." and "We expect to be able to issue you with a VAT registraiton number in about 8 weeks but it may not take this long."

So riddle me this, Riddler: what on earth can take HMRC twenty weeks to process a VAT application which was correctly completed to start with?

The last word
Is it a solution to devise a system of controls, designed to prevent an abuse by a minority, and apply them indiscriminately to everyone? I like the story of the courageous retailer who successfully improved her business model by deciding to focus on selling to the majority rather than preventing theft by a minority. The change in focus, leading to tangible changes to the store layout and removing restrictions like the number of items a shopper could bring into the dressing room, led to strong retail sales growth without an increase in theft.

Even with our Government Think Tanks and the intelligence of many civil servants you would think a better solution could be devised, rather than a fix, which must naturally assume everyone a crook.

It can now take over three months and up to five months to get a VAT registration number from HMRC as they seem unable to apply any form of risk management or triage to the registration process. You have small "rinky dinky" companies being asked to provide business plans and marketing material, and they can be still turned down for registration for not supplying more information; none of which is asked for at the registration stage.

Right now this situation would seem to be permanent. I have two new companies registering for VAT. Company A applied for registration on the 6th June and is still not registered. I received a letter to Company B this morning advising me that it may take another 12 weeks. Company B is registering on a voluntary basis with monthly turnover not expected to exceed £6,000.

However, what I find most disconcerting about this process is HMRC stating on their website:

"Although you cannot charge VAT before you are registered or show VAT as a separate item on any invoices you issue, you can change your prices to include VAT. You can do this from the date you should be registered and before you receive your Certificate of Registration. You will need to explain to your customers that you will be sending them VAT invoices later."

I can change my price to include VAT but can't show it on the invoice, so my customer is unable to reclaim any of this VAT until I later provide him with a VAT invoice. As a customer I would assume my supplier is pulling a fast one, I will never get an invoice. I would certainly not pay over the full amount, and then we are in the wonderful accounting  world of part payments, later followed by credit notes and re-issued invoices.

As a customer, unless I am buying from a personal service company, I wouldn't buy stock from a company which is not registered for VAT, as I wouldn't believe in the substance of it.

Being the sole director of an existing company which is VAT registered and always pays its VAT on time means nothing to HMRC if you wish to start another company. They will approach your application as though your intent is to fraudulently register for VAT. The fact you might be a home owner in the UK, be the member of a professional body, have previously worked in government, pay your VAT on time are not considered as no risk assessment is applied. Is this the best use of tax payers money? Surely there is something fundamentally wrong with the registration process.

It can now take over three months and up to five months to get a VAT registration number from HMRC as they seem unable to apply any form of risk management or triage to the registration process. You have small "rinky dinky" companies being asked to provide business plans and marketing material, and they can be still turned down for registration for not supplying more information; none of which is asked for at the registration stage.

Right now this situation would seem to be permanent. I have two new companies registering for VAT. Company A applied for registration on the 6th June and is still not registered. I received a letter to Company B this morning advising me that it may take another 12 weeks. Company B is registering on a voluntary basis with monthly turnover not expected to exceed £6,000.

However, what I find most disconcerting about this process is HMRC stating on their website:

"Although you cannot charge VAT before you are registered or show VAT as a separate item on any invoices you issue, you can change your prices to include VAT. You can do this from the date you should be registered and before you receive your Certificate of Registration. You will need to explain to your customers that you will be sending them VAT invoices later."

I can change my price to include VAT but can't show it on the invoice, so my customer is unable to reclaim any of this VAT until I later provide him with a VAT invoice. As a customer I would assume my supplier is pulling a fast one, I will never get an invoice. I would certainly not pay over the full amount, and then we are in the wonderful accounting  world of part payments, later followed by credit notes and re-issued invoices.

As a customer, unless I am buying from a personal service company, I wouldn't buy stock from a company which is not registered for VAT, as I wouldn't believe in the substance of it.

Being the sole director of an existing company which is VAT registered and always pays its VAT on time means nothing to HMRC if you wish to start another company. They will approach your application as though your intent is to fraudulently register for VAT. The fact you might be a home owner in the UK, be the member of a professional body, have previously worked in government, pay your VAT on time are not considered as no risk assessment is applied. Is this the best use of tax payers money? Surely there is something fundamentally wrong with the registration process.