Many businesses and professionals will be aware of the significant delays at HMRC in processing applications and requests. This is undoubtedly a result of Covid-19 and the redeployment of staff due to Brexit implications.

For VAT, these delays seem more prominent in the VAT Group Registrations Team and the Option to Tax (OTT) team. What is the impact on businesses?

The impact of waiting for a Group VAT registration

At the time of writing, the VAT Group Registrations team is working on applications submitted over six months ago. There is currently no way to fast track any urgent applications with HMRC. 

A delay in obtaining a group VAT registration number can cause a number of issues. These include being unable to show a VAT number on invoices, a delay in recovering VAT incurred on costs and the VAT treatment of supplies between group members. 

The delays also extend to processing forms to add a company or remove one from an existing group registration. This can, in turn, cause delays with certain transactions including company restructures or the sale of a business.   

It is important that a company awaiting a VAT group number but registered under a standalone VAT registration number prior to the group application, seeks advice before submitting a VAT return that becomes due before the group application has been processed. 

Under normal circumstances, if a return is submitted before the group application has been processed, HMRC will usually amend the effective date of the group VAT registration. This could affect the ability to recover VAT incurred on costs. 

However, pressure has been put on HMRC to be more lenient given the delays. Following discussions with the Chartered Institute of Taxation, HMRC has provided new guidance regarding how businesses should account for VAT while waiting for HMRC to approve their VAT group applications.

HMRC say that whilst the application is processing, if the single entity and/or the VAT group are already VAT registered, their VAT returns must be filed as they become due and should be calculated as if the group application was not happening. This means that any supplies between the potential new group members must be treated as normal sales and purchases rather than be disregarded for VAT purposes. 

Once the application has been processed, HMRC will make contact with either the business or its agent to discuss additional steps that may be required so it can join the VAT group from the date requested. For example, HMRC may cancel the submitted VAT return where the period overlaps with the effective date of the group registration or request that the business makes an adjustment or submits an error correction. The cause of action will depend on the specifics of each case. 

Delays to OTT applications

It is no surprise that HMRC’s OTT team continues to face significant delays. However, there is some hope in instances when the delays could result in a financial loss where a sale of property is agreed. For example, this could include when a purchaser refuses to pay VAT on a property transaction without evidence of the OTT.  In these cases, HMRC will fast track their response when they receive a letter from the solicitors dealing with the sale. However, it is important that their letter highlights the implications to either the seller or buyer if the case is not processed. The letter should include the following information:

  • The names of the parties to the sale
  • The solicitor’s name and wet signature
  • Date for completion of sale of the property
  • Seller’s VAT registration number (VRN)

If you are experiencing frustrations with the delays with VAT group and option to tax applications and would like further information and guidance on practical solutions to manage risk, we’d be very happy to help. Please contact me or your usual Thomas Westcott advisor.