Thousands of businesses registering for VAT for the first time are facing unprecedented delays because of the Government's attempts to crack down on carousel frauds and cut costs. The average time taken to process VAT registration applications is now 38 days, almost three times HM Revenue & Customs's 14-day target. But leading accountants warned that, in extreme cases, businesses have had to wait more than six months.
Alan Pearce, a VAT partner at the accountants Blick Rothenberg, said: " This is seriously affecting the cash flow of many small to medium-sized businesses, with what should take a couple of weeks now taking up to 30."
A spokesman for HMRC admitted that it has so far been unable to reduce VAT registration delays, which have been increasing since the beginning of the year.
He said: "The main problem has been that we have been doing extended checks on some businesses as part of our attempts to reduce fraud, but there has also been a spike in applications because of changes to the tax regulations for managed services companies."
Opposition MPs accused the Government of mis-managing the department. " This has been a longstanding problem that is just getting worse and worse, with no sign of the Treasury getting to grips with it," said David Gauke, the Conservative Treasury spokesman. He said many of the problems stemmed from budget cuts made at the Treasury and the units it oversees such as HMRC, when Gordon Brown was still chancellor. "It is clear that HMRC is struggling to cope with a whole host of problems," he added.
HMRC said it was reducing the number of VAT registration units from four to two. But while the spokesman admitted this could lead to "slightly fewer people" working on applications, he claimed streamlining of procedures would eventually reduce delays.
The problem is hitting businesses in several ways. Importers paying VAT on goods purchased overseas are unable to reclaim the tax until they have a valid registration number. "There is also a reputational issue," added Mr Pearce. "The perception is often that if a business does not have a VAT number it must be very small-fry or that there's something wrong."
Paul Gray, HMRC's chairman, said improvements should begin in the autumn, but the department has not set a deadline for hitting the 14-day target.