United Kingdom - Revenue apologises for delays on VAT

Revenue & Customs has apologised to thousands of UK taxpayers for the “inconvenience and difficulty” they have suffered amid escalating complaints about unanswered mail and the slow processing of value added tax registrations.

The delays have caused intense frustration to taxpayers this year, particularly start-up businesses that have faced cashflow problems as many customers would not pay bills until they received a proper VAT invoice.

The Revenue said: “The current position on VAT registration application processing is a major concern for agents and HMRC [the Revenue] shares those concerns and is working hard, at the highest levels, to address them.”

It was missing its target of processing low-risk VAT registrations in 14 days “in most cases”. It shared concerns about the delays experienced this year in answering post, which it expected to be rectified by the end of the year.

Frank Haskew, of the Institute of Chartered Accountants in England and Wales, said: “The picture is not a particularly edifying one. One senses they have rather lost control. That is very serious.”

“We are hearing stories that tax offices are still opening letters from two or three months ago. Our members and their clients are at the end of their tether.”

Although the Revenue was putting considerable effort into tackling the problems, the current squeeze on its budget would make it harder to improve its service, he said.

The Revenue said one reason for the delays was the need for more intense scrutiny of applications to combat “missing trader” fraud, a scam that relies on obtaining a VAT number. Missing trader fraud robbed the exchequer of £2bn-£3bn in 2005-06, although the Treasury said this week its operational measures had resulted in a drop in attempted fraud of up to £1.5bn in 2006-07.

It promised to target its pre-registration checks – which last year weeded out more than 7,000 applications – more effectively and reduce the number of queries that were referred back to businesses before their applications could be processed.

The “drop in service standards” was also blamed on a jump in company formations after this year’s Budget, as a result of a change in policy on managed service companies that encouraged workers to set up companies. IT problems and the consolidation of its VAT registration work into only two sites were factors.

It expected a turnround in performance later this autumn, but warned that the lead time in implementing changes, including training new staff, meant it would “take time to see the improvement flowing through”.

The delays in answering queries largely stem from problems introducing “lean” management techniques. The Revenue said: “Some offices have adapted to the new ways of working better than others.” But it was confident the new system would result in improvements when it was truly embedded.

Its goal was to ensure that all customers received a consistent service on a “first in/first out” basis – rather than some having to wait much longer than others for a response to their inquiry.