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Number of VAT-registered businesses falls by 40,000

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With the number of UK businesses registering for VAT and PAYE dropping to 2.7m, the AccountingWEB community discusses why this is happening.

9th Oct 2023
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Last week, VAT specialists VATCalc revealed that the number of UK businesses registering for VAT and PAYE dropped by over 40,000, the first drop in registrations since 2011.

With the number of businesses currently sitting at 2.7m, small businesses and sole traders were the most likely to de-register. The sharp drop is believed to be caused by increasing cost-of-living pressures as well as post-Covid crisis insolvencies.

Looking through the information provided by the Office for National Statistics, the industries that saw the biggest decreases in registrations were the transport and storage sectors, IT and the sciences. 

In a glimmer of optimism however, the arts and entertainment sector and property market had seen increases across the board.

Tightening the thumbscrews?

The Any Answers community seemed unsurprised at the drop, with many connecting the decrease to HMRC’s recent crackdown on fraudulent claims. 

“Maybe HMRC has just recently woken up and deregistered all the fraudulently registered ones?” wrote Any Answers user Justin Bryant, linking back to a previous post on fraudulent VAT claims.

Backing Justin’s position, eagle-eyed member Mr Hankey also noted that HMRC seems to be looking to bolster its fraud-hunting team, with a recent job application for a “higher technical surveillance officer” being advertised on HMRC’s website.

A slow service

On the other hand, some users put the drop in VAT and PAYE registrations down to an unwieldy HMRC slowing down the process.

While AccountingWEB contributor Jason Croke also believed the drop was at least partially due to HMRC’s more aggressive approach to hunting down fraudsters, he argued that these very same systems were impeding an already sluggish tax authority.

“The speed at which HMRC is issuing VAT numbers has been very slow. There must be a backlog of VAT registrations that have not yet been processed, which wouldn’t have been included in the statistics,” Croke continued.

Member rmillaree with Croke, writing that “it’s a nightmare getting VAT numbers nowadays”.

“I wonder if there is a material amount missing that should be VAT registered but can’t get a VAT number from the VAT office,” rmillaree continued.

However, Croke noted that, while the economic situation wasn’t perfect, the SME sector has remained relatively stable. With that said, Croke argued that “there is something else going on behind those statistics”.

Replies (3)

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By David Winch
11th Oct 2023 10:49

My reason for de-registering from VAT last year was my refusal to pay for software to link my accounts package (which I wrote myself) to HMRC's system for MTD. As my turnover remains below the compulsory VAT registration threshold, it was an expense I did not feel the need to incur, having been an unpaid tax collector for HMRC for many years.

My current inability to reclaim input tax might eventually outweigh the cost of acquiring the additional software, but I'm not bovvered!

David Winch
Sales & Marketing Consultant, Cambridge

Thanks (3)
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By Ralphgab
11th Oct 2023 11:52

We have registered 2 businesses for VAT recently and both have been very long winded. The first is a repayment trader selling zero rated foodstuffs. Not understanding what "taxable" meant he said taxable turnover would be nil thinking it referred to standard rate supplies. Because it's impossible to communicate with VAT registration the application was rejected due to this simple error. ( I have cut this VERY short). I sent evidence of trading via recorded delivery just to be ignored. Phone calls were not answered and messages left ignored, after we found a phone number to call! We only found out the reason after making a complaint via the client's MP. A second application was monitored by the complaints people and went through OK.
When you submit an application you are merrily informed that you will get a reply in 40 (yes forty) working days, leaving traders in limbo for up to 2 months. The impression given is that it's a privilege to be VAT registered, not a legal obligation. Appalling service

Thanks (2)
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By CHancott
12th Oct 2023 09:29

In August I registered one of my businesses for VAT and it only took 6 days to get the number through. I feel shocked that I'm about to say this, but I don't think the backlog situation at HMRC is as bad as people are making out for VAT.

I expect that the backlog for complex cases is higher, but this is normal.

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