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Red tape | AccountingWEB | HMRC blasted as VAT registrations fall
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HMRC blasted as VAT registrations fall

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HMRC has been criticised for its excessive red tape as thousands of businesses find themselves unsuccessful when applying for VAT registration.

5th Jun 2024
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The number of VAT-registered businesses in the UK has fallen to below 2.4m according to new data, with accountancy firm Lubbock Fine partly attributing the decline to “how hard HMRC is making it” to start a new company.

The 2,397,000 total for 2023/24 – compared to 2,464,000 for 2022/23 – comes on the back of 53,000 businesses out of 314,000 being unsuccessful last year when applying for VAT registration, according to the firm.

Lubbock Fine has noted that HMRC’s “excessive caution with fraud in VAT applications” is leading to it clamping down on fraudsters, but these same problems are being compounded by the department’s ongoing customer service crisis.

Figures in March showed the proportion of customers waiting longer than 10 minutes on the telephone for a response had increased from 48% in 2022 to 71% in 2024.

No sign of improving

Jas Dhillon, partner at Lubbock Fine, stressed that HMRC’s approach to small business shows no sign of improving.

“It is stopping new businesses from trading and hindering business expansion,” he said. “The UK needs to make it as easy as possible to set up and start a business. This is bad for the Treasury, as well as the wider economy.”

Dhillon believes the problems are “in part caused – and in turn worsened – by the sheer difficulty of getting HMRC’s technical experts on the phone”.

“VAT applications are often complex. It is essential that the appropriate experts can be reached swiftly. Issues must be resolved and applications approved for businesses to trade.”

A two-pronged rejection

VAT applications can be rejected by HMRC for one of two primary reasons – having the incorrect information or misunderstanding the application.

Dhillon added: “Any small inconsistencies raise the risk of HMRC refusing an application wholesale – however small the issue.

“Many business owners are frustrated by what they see as excessive red tape. HMRC requesting more information often feels like starting from scratch, which pressures some businesses to give up on the application prematurely.”

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Replies (13)

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By Trethi Teg
05th Jun 2024 14:27

I have come up against this. I think their attitude if there is any small problem is to reject it and therefore clear the "backlog" they have to report to their bosses and onwards to Parliament etc.

Similar to answering a call regarding any matter and then hanging up on you ASAP. Another call answered and waiting times cut down. This also means that the number of calls is exagerated (when you phone back) giving them an excuse for delays and the clear up rate is then increased in percentage terms.

Their "service" is causing severe difficulty for business.

Thanks (8)
By ireallyshouldknowthisbut
05th Jun 2024 14:41

I have applications are being processed quicker than when the new system started but its the same old problems.

Anything falls over, and its virtually impossible to get the applicaiton back on track if it falls over for some reason, and they wont tell you ***why*** so its really hard to fix.

So you have to start again and pray you dont have two VAT numbers.

More work for everyone.

A human picking up that phone thing and calling the applicant for 5 minutes would solve I imagine 90% of queries and save loads of time for everyone. But nope, better to reject and deal with a whole new application.

Thanks (4)
Rob Swan
By Rob Swan
06th Jun 2024 09:08

Interesting, but who's surprised?

"Figures in March showed the proportion of customers waiting longer than 10 minutes on the telephone for a response had increased from 48% in 2022 to 71% in 2024."

If they're using 10 minutes as a basis for meaasuring call waiting times at HMRC I'm thinking "That's the 'wrong' measure!". Maybe they should measure waiting times in 10 minute increments, measure 'answered' vs 'rejected' (HMRC hang up) and 'abandoned' (caller hangs up) and we'd have a true picture.

On the point of VAT applications being rejected on small points; this - to me - looks like 'automation' doing it's thing (ie. black or white; "Computer says 'No'"), of which we can only expect more from HMRC. If people are processing applications they tend to be more 'helpful', but maybe people are processing the applications and have to use IT which isn't helpful and insists on 100% correctness or rejection. Either way, this is a good indication of the problems computerisation brings (MTD) over humans being helpful. NOT progress!

On the difficulties and complexities of starting a business today (2024)....
It's incredibly difficult and a HUGE barrier to economic growth. I started my first business in 1993. It was daunting but after the event I realised how easy it was and the 'daunting' was only fear of the unknown. After you've done it once, it's actually very easy. But today.... It's horribly difficult, there are way too many rules, regulations and hurdles. You need specialist advice in almost every area if you want to stay compliant and becoming an 'employer' - what the government want - is just flat out terrifying and introduces no end of liabilities! And this is progress? For whom?

OK. I'm off to a darkened room now. I may be some time.....

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Replying to Rob Swan:
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By johnjenkins
06th Jun 2024 09:25

Rob, isn't that the whole point of what HMRC are doing at the moment and that is to get rid of small business, namely one man bands in any guise?

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Replying to johnjenkins:
Rob Swan
By Rob Swan
06th Jun 2024 13:05

Well John... I'm not at all convinced HMRC are trying to do that, although it's a reasonable conclusion based on their actions. I think they are entirely (corporately) stupid enough to pursue a policy without considering the consequences or side effects - that's what they do ;)
I honestly think the Gov't know they need small businesses - from tiny acorns.... etc. Job Centres actively encourage small business (one man) startups and numerous organisations receive Gov't funding to assist small startups.

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Replying to Rob Swan:
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By johnjenkins
06th Jun 2024 13:28

OK, let's rephrase my analysis. HMRC (Government) want to control small business totally. Unfortunately in doing that it will destroy small business because there is too much compliance and red tape that they cannot do their work properly. HMRC are trying to make small business do away with Accountants or become so cost ineffective as to pay high Accountants fees. Whichever way you look at it the small business is going under and as I've said many times we are in a period of stagnation. How many Accountants are leaving the profession? Loads

Thanks (2)
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By Ralphgab
06th Jun 2024 09:50

A client's application was refused because the supplies were zero rated foodstuffs, so when answering the question "What will your taxable turnover be?", our client replied "zero", not understanding that zero rated supplies are taxable. An understandable error for a non VAT specialist.
The problem could have been solved very simply apart from the fact that it was impossible to speak to anyone even when we found a phone number, and mail enclosing proof of trading was just ignored.
It was only sorted when we involved the trader's MP. Who do you charge for all the wasted time?
PS We only found out what the probem was after involving the MP. Prior to that no explanation was forthcoming.

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By ralan
06th Jun 2024 11:39

If anyone got through to VAT in 10 minutes that is great, I was cut off after holding for 30 minutes, so much for "Customer Service"

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By agknight
06th Jun 2024 17:03

As with a lot of government based things these days, there is no understanding of business and no willingness to nurture and support small business.

Surely the best thing to do would be to allow the registration relatively painlessly, then monitor the performance of flagged businesses. How about a Vat visit a few months in, to run through things. Hey presto a business started on the right road and the government oiling the wheels of the economy and pulling in more tax for them to spend. Win win.

No, lets not be commercially wise and strangle enterprise before birth.

Thanks (2)
VAT
By Jason Croke
06th Jun 2024 18:49

HMRC uses a mainly automatic system for processing VAT registrations.

When submitting a registration online, you input various details about the business, some elements such as the UTR or Directors NI number are checked "live" before you can move onto the next page, some answers you give may trigger additional questions (ie, if you say the business activity is land related, it will ask you to download a VAT5L and you cannot submit the application without attaching the completed VAT5L document).

So in theory when the completed application is submitted, there are no missing answers and some answers have already been qualified.

The automatic system then takes around 2-3 days to decide :-

1. Issue a VAT number automatically without any involvement of HMRC officers
2. Request additional information by issuing an automated letter detailing what the extra information is
3. Refer the file to a human for manual verification or
4. Reject the case, issue automated rejection letter.

Nothing wrong with an automated system like this but where applications are referred to humans then it needs to have humans who can quickly respond, why can't the system allocate an Officer and send the applicant details - via messaging within the gateway - of who will be calling and when.

Rejection letters should have some explanation as to why rejected, as the system has automatically made the decision then it should know what the problem is and state this on the letter "you're name doesn't match your UTR, etc".

My point is, the process is heavily automated but then pulls up short where it really matters, when communicating outcomes to the customer.

Thanks (4)
Replying to Jason Croke:
Rob Swan
By Rob Swan
06th Jun 2024 20:08

"The automatic system then takes around 2-3 days to decide"

Looks like HMRC are still using steam powered calculating machines. Or maybe the elastic band on the wind-up version is wearing out. No reason these days why technology can't be 'instant'. But then it's HMRC we're taling about....

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Replying to Rob Swan:
VAT
By Jason Croke
09th Jun 2024 11:20

Indeed.

The 2-3 day automated process was described to me by a senior HMRC Officer as a result of my complaint when one of my VAT applications was rejected even though it was a backdated application (by 9 months, which was when my client had gone over the threshold), but hey, if you don't want my client to register for VAT and pay backdated taxes....

Thanks (1)
Replying to Jason Croke:
Rob Swan
By Rob Swan
09th Jun 2024 13:50

His Majexty's Refuser of Customs.
Someone should write a script - Yes Minister meets The Office type of thing . They'd have to base story lines on 'real' cases because even the best fiction/comedy writers couldn't match this madness! Then maybe, just maybe, someone with power would take action - Mr Bates v Post Office type of thing.

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