Businesses that have been hit by the taxman’s failure to resolve the ‘VAT waiting list problem’ should be paid compensation.
The Institute of Chartered Accountants in England & Wales made the recommendation in a paper to HM Revenue & Customs, designed to remedy the 3-month backlog.
The leading accountancy body also wants a Parliamentary inquiry into why the delays in obtaining a VAT number, which apply to online and paper registrants, are getting worse.
Without the number, new businesses cannot claim back VAT they charge their customers and often struggle to get invoices paid, potentially causing them cash flow problems.
The registration delays appear to have stemmed from two factors: more thorough checking procedures have started, just as the number of VAT registration units was halved.
The ICAEW added that the more detailed checks into registrants, which are designed to reduce fraud, were begun by HMRC without “adequate resources”
It said in a statement: “We are concerned that the continuing delays have damaged HMRC’s reputation and will act to discourage good tax compliance from taxpayers.”
The Revenue’s duty to protect the exchequer is now making life increasingly difficult for everyone in the VAT queue, most of whom are running reputable businesses.
People waiting to register for VAT, should consider issuing proforma invoices, on the condition that they will issue proper VAT invoices when they receive their number.
Sending a proforma invoice to a client should be accompanied by a covering letter that states the informal document will precede a genuine VAT invoice.
But in no circumstances should VAT be separately itemised on an invoice, as it is illegal for a business to charge VAT while not registered.
The ICAEW also advised that any charge made should be enough to include the VAT liability that will be incurred once registration is complete.
However as customers will be unable to claim this back without the supplier’s VAT registration number, they may not be prepared to pay in advance.
The institute recommended: “In such circumstances, it will be necessary to make a further charge when issuing the VAT invoice at a later date.”
Other business were advised to ensure the prices they charge are sufficient to include any VAT that may become payable after registration of VAT has been obtained.
Aug 21, 2007
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