Finance Bill

I am grateful to my right hon. Friend. I will deal with some of these points in more detail in a few moments. HMRC’s standard target is 21 days —15 working days. There may well be circumstances in which additional time is necessary, but at the moment there are regularly delays of three, four, five or six months. That is unacceptable. Let me consider some of the performance figures. HMRC accepts that last summer’s performance was unacceptable. In June 2006, 109 complaints were made, and in July 2006 the figure was 96. I have the most up-to-date figures from answers to parliamentary questions, which show that the number of complaints had increased to 131 in April 2007 and 133 in May 2007. Perhaps the most important figure is the percentage of applications that were processed within 21 days of receipt. In May, June and July 2006 it was 56, 57 and 57 per cent. respectively. Again, the most up-to-date figures that I have are from parliamentary answers. Although in January HMRC officials were looking for a substantial improvement, and recognised that there had been a problem the previous summer, the figure was still a mere 60 per cent.; anecdotal evidence suggests that it may have declined since then. However, even if 60 per cent. of applications are tackled within the 21-day target period, that means that of approximately 280,000 VAT applications a year, some 112,000 are not tackled in that time. That is a substantial number. Given that I believe that the target has been missed by some margin, we are talking about a reasonably major issue. The concern was further highlighted last week in an article that John Arnold, the chairman of the tax faculty of the Institute of Chartered Accountants in England and Wales, and Neil Gaskell, its technical manager, wrote. Their introductory remarks are worth quoting:"““At the Tax Faculty we know that the continuing and unacceptable HMRC delay in processing new VAT registrations is the biggest single VAT issue facing our members and their clients.""Some registrations are taking over six months to obtain. Smaller businesses are faced with cash flow problems because, ""without a VAT number, they have difficulty in getting their invoices paid. Larger businesses find restructuring or acquisitions held up; and for everyone, property transactions are delayed if the purchaser needs to become VAT registered””." They go on to argue that accountants have been running up approximately £100 million worth of chargeable time as a consequence of trying to deal with HMRC’s inefficiencies and errors. They estimate that only 20 per cent. is passed on to clients. None the less, the problem affects accountants and clients. How bad is the problem according to HMRC? Mr. Arnold and Mr. Gaskell state in their article that HMRC claims that 95 per cent. of applications are processed within 30 days; I remind hon. Members that the target is 21 days. Let us consider the assessment that the accountants make of the various VAT registration offices. They note that Newry takes 30 days, and Wolverhampton takes 34 days to open applications. Performance appears to be slightly better in Carmarthen, but there are no details. Hon. Members should note that we are considering the time taken simply to open applications. The accountants’ article refers to HMRC’s figure of 30 days, although an article in last week’s Financial Times cited 38 days. Does that figure mean that processing takes place 30 days from receipt, or 30 days from opening applications? If it is taking more than a month simply to open applications, we are contemplating serious problems. As Mr. Arnold and Mr. Gaskell say, it suggests that the 30-day claim is somewhat ““misleading””. One of the problems that the tax faculty article identified is the large increase in the number of applications for VAT registration, which the Government’s legislation on managed service companies has caused. I am sure that we will revert to that subject later because it has caused a substantial increase—approximately 20,000—in applications. The VAT application officers have simply been unable to cope with that. The issue raises several questions, and I would be grateful if the Financial Secretary could answer them. Do the Government accept that performance in dealing with VAT applications is declining? Does the Financial Secretary have any further up-to-date figures? Does he maintain that 95 per cent. of cases are tackled in 30 days, or 38 days? Does that time run from receipt of applications or opening of applications? The accountants have raised concerns about the closure of the Newry VAT office. What will be the effect of that? HMRC appears to have acknowledged that it will cause further delays. What steps did HMRC take to mitigate the problems that the proposals for the managed service companies caused? Was it anticipated that they would cause an increase in VAT applications? What was done to tackle that? Are the problems exacerbated by attempts to reduce HMRC staff? Is that a wider problem in HMRC? Are legitimate companies that are trying obtain a VAT registration feeling the impact of attempts to reduce staff? How targeted are the problems relating to VAT registrations at companies that are in high-risk areas for missing trader intra-Community fraud? The problem appears to be much greater than simply a handful of companies in key high-risk areas, such as mobile phones or specific electronic goods. The second cause of concern is VAT repayments. In Committee, I provided several examples of difficulties with VAT repayments. Again, there is clearly a relationship with MTIC fraud; indeed, it is even stronger. The system of extended verification, which has caused delay in several cases, is undoubtedly an attempt—on the face of it, a successful attempt—to tackle MTIC fraud. Two statistics are wheeled out. First, in 95 per cent. of cases in which traders are subject to extended verification, participation in or profit from MTIC has been found, or sufficient suspicion exists to warrant further investigation—““sufficient suspicion”” in the opinion of HMRC, presumably. There is a distinction between cases in which someone subject to the extended verification system has been found to participate in or profit from MTIC fraud and those in which sufficient suspicion exists. Is it possible to break down the figure of 95 per cent. to ascertain how many traders fall within each category? The second figure that HMRC uses is the 1 per cent. of withheld VAT, which is subsequently found to have been correctly claimed and properly payable. The test of ““correctly claimed and properly payable”” is higher than that for being involved with MTIC fraud. I sought further clarification through parliamentary questions without success about whether it could be argued that an element of the VAT funds that are not being repaid do not relate to MTIC fraud but to a technical, perhaps minor, breach of the claim form. I should be grateful for that further clarification. There is a concern that staffing underlies many of the problems, especially those with VAT registration. In Committee, I raised the case of Viking Garages, and a professional adviser to the company pointed out, in connection with VAT repayments:"““HMRC are putting woefully inadequate resources to the team responsible for authorising repayments”” ." Do the Government recognise that there is a problem, and a staffing issue? If so, what steps will they take to improve the position? Both issues hamper legitimate business. There is concern that the delays are preventing us from dealing accurately with MTIC and from taking well-targeted action, but there is broader anxiety that the legitimate needs of legitimate business have not been facilitated by HMRC. New clause 4 highlights and attempts to address those concerns. For 12 months, professional bodies and members of the Conservative party have sought to improve something that HMRC has recognised is a serious problem. I hope that the Financial Secretary accepts that there is a problem, and will provide reassurance that those concerns will be addressed.