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!

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?

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.