VAT Registration: The Headache, Red Tape & Ways to Relieve the Pressure

There are many obstacles to overcome for new start-ups and perhaps one of the most taxing (excuse the pun) is the arduous task of VAT registration. Prime Minister David Cameron promised at the Conservative Party conference in 2011 to eradicate “ridiculous rules and regulations that make life impossible for small firms.” It would seem, however, that not a lot has changed; at least as far as VAT registration goes.

Stephen Hay, CFO of Bishopsgate Financial, a City-based business consultancy, wrote a guest article for Financial Director recently highlighting the headache a drawn out VAT registration process creates for FDs. “My company applied for VAT registration in June 2009 and received a VAT number on 15 December 2009,” he explained. The issue with this of course is that in the interim period HRMC stipulated that the company must simply add 20% onto all of its prices for clients. “Not a great way to win over new customers and suppliers,” he rightfully pointed out.

The idea of eVAT registration, a sort of online fast-track approach, was trialled several years ago but due to administrative constraints never really got off the ground, despite HRMC managing to initiate the system with the help of Deloitte. The problem, Hay says, is still a prominent part of life for a new business.

“The time and effort involved in securing a VAT number via this drawn out, inefficient process can be soul destroying for a start-up business.”

Whilst sources of advice for small businesses do exist, the problem has the potential to be multiplied for cross-border companies. There is a multitude of reporting and compliance obligations to go with the customer/supplier issues mentioned above. Online retailers, event companies and businesses established outside the EU but trading within Europe in particular are advised to be wary of the regulations in regards to VAT registration in the relevant territories.

Online sales have increased 222% over the last five years and with the borderless nature of purchasing something in this manner (a French individual buying a book from a UK company, for example) there is the potential for retailers to fall foul of VAT registration laws. Italy and Belgium have VAT thresholds set at €35,000, meaning a business will very quickly become liable to be registered. Factor in also the fact that UK accounting systems are not usually set up to deal with European reporting and it’s easy to see how companies can feel out of their depth.

Businesses are advised to negotiate the entire process with the assistance of a reliable cross-border VAT registration expert that can offer a one-stop shop approach to compliance and administration both in the UK and abroad.