The UK tax authority’s new online VAT system is causing ‘devastation’, agents say

HM Revenue & Customs’ new platform for businesses to register to pay VAT has “wreaked havoc” according to consultants, raising greater concern about the UK tax authority’s plans to overhaul its systems.

Since August, all tax officials registering businesses for VAT must use a new platform under the government’s Making Tax Digital program. The ultimate goal is to automate tax returns and payments for businesses and households for all major taxes.

But Ruth Corkin, technical chair of the VAT Practitioners Group, which brings together tax officials from across the country, said “the new system has wreaked havoc, to say the least” and that “the delays are appalling”.

Previously, registrations would normally be deleted within days, she added, but now wait times of more than 12 weeks – exacerbated by the Covid-19 pandemic and companies transitioning to the new system – are not uncommon.

Richard Wild, head of tax technical at the Chartered Institute of Taxation, said the new platform was launched “with limited testing by agents, little advance warning and insufficient guidance”.

Businesses with an annual turnover of over £85,000 must register for VAT. The number of monthly VAT claims received by HMRC this year ranged from 25,000 to 70,000. VAT is the first tax to be fully transitioned to the digital tax system, a process that began in 2019.

Professional bodies, including the Institute of Chartered Accountants in England and Wales, acknowledged that HMRC had fixed some of the system’s key initial problems. But they said others, like the inability for foreign partnerships to apply online, have yet to be resolved.

For security reasons, all VAT number confirmations that were previously issued online are now sent by post, causing further delays.

“We had so many contacts on this,” said Caroline Miskin, ICAEW Senior Technical Manager. “There’s real economic impact because it might delay people from trading.”

In order to sell goods into the UK, overseas groups need a VAT number. UK businesses can act in the time between applying for and receiving a number, but Corkin said there was a “huge administrative burden” during this period as businesses prepared to send out late bills.

Corkin added that overseas sellers faced the worst delays, which HMRC attributed to checks and responses taking longer, and that “many online retailers I know have said, ‘We’re just not going to trade in the UK ‘”.

Trade associations urged the agency to step up testing before moving income tax to the digital tax system. This will be a more ambitious project that will transform the filing process for 4.3 million taxpayers, including landlords and the self-employed.

Emma Rawson, technical officer at the Association of Taxation Technicians, said HMRC should ensure that “they don’t introduce new IT services until they are sure they are fit for purpose and have been thoroughly tested”.

According to the authority Service Dashboard, VAT registration recently operated a “normal service” aiming to respond to applications within 40 working days. The Service Level Agreement was recently increased from 30 business days.

But Abigail McGregor, legal director at Pinsent Masons law firm, said the registrations have “increased waiting times by at least 3-4 months”.

HMRC said: “We continue to process most VAT registrations within our usual 40 days, but we have seen more applications requiring additional checks.”

It added that it is providing “additional resources” for registrations through the new system, which “will work with tax officials and . . . the broader agent community since launch”. The UK tax authority’s new online VAT system is causing ‘devastation’, agents say

Adam Bradshaw

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