Chartered accountants and business advisers Lubbock Fine have revealed that 17% of businesses, approximately 53,000, faced unsuccessful VAT registration applications with HM Revenue and Customs (HMRC) in the past year.

According to HMRC data reported by Lubbock Fine, out of 314,000 VAT applications made by businesses last year, 261,000 were successful, while 52,000 were refused and 1,000 were withdrawn.

This revelation comes amid concerns that businesses unable to secure VAT registration are hindered from trading, leading to decreased economic activity and reduced tax revenue.

The stringent approach by HMRC to combat VAT fraud has resulted in a crackdown on potential fraudsters, with some traders facing significant penalties. Lubbock Fine has highlighted that HMRC’s efforts to combat fraud are further complicated by an ongoing customer service crisis, with increasing wait times for customers seeking assistance.

Jas Dhillon, Partner at Lubbock Fine, expressed concern over HMRC’s approach to small businesses, noting its adverse impact on new businesses’ ability to trade and hindered business expansion. Dhillon emphasised the importance of facilitating easy business setup and startup processes to support economic growth.

The challenges faced by businesses in obtaining VAT registration stem from HMRC’s rigorous scrutiny of applications. Applications may be rejected due to incorrect information, such as personal details of company directors or business descriptions, or misunderstandings of the application’s contents. Furthermore, businesses may withdraw applications due to HMRC requests for additional information or misinterpretations of VAT rules.

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According to Dhillon, the involvement of accountants or VAT advisers early in the application process is crucial for improving outcomes and expediting the process. Many business owners, frustrated by what they perceive as excessive red tape, are pressured to prematurely abandon applications when HMRC requests further information, reinforcing the importance of professional guidance.

In light of these challenges, Lubbock Fine urges HMRC to streamline its VAT registration process, enhance customer service responsiveness, and provide clearer guidance to businesses.

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