VAT black hole causes industry woe

International hauliers say the debacle caused by the introduction of a new VAT refund system (first exposed in May) is continuing to cause serious problems to their cash flow, with some fearing payments won't be dealt with until 2011.

Problems started at the beginning of the year when a new online system was introduced across the European Union to deal with VAT refunds for businesses.

The wording in a Revenue & Customs guidance document, published during 2009 highlighting the forthcoming change, in hindsight seems designed to raise the hackles of international operators faced with an unworkable new system: "The current system, known as the 8th VAT Directive refund system, is a lengthy, burdensome, paper-based system."

And yet it is exactly that lengthy, burdensome process that hauliers now hanker for as their applications for hundreds of thousands of euros disappear into a swamp of Continental bureaucracy.

One large operator, Time Critical International, has already blamed its administration partly on the inadequate VAT refund system (CM 19 August).

Peter Harding, owner of Haverfordwest-based Peter Harding Freight International, says various electronic glitches in different European countries have conspired to withhold 21% of the refund due on VAT paid on the 28,000 litres a month in fuel his drivers are buying abroad.

"We are almost into month nine and I haven't had anything from Belgium for the first quarter yet," he says. "When our quarter comes up for payment we owe the UK government quite a lot of VAT, but we are not getting it back from abroad. They are getting 21% within a fortnight of me paying for the diesel. Then they are sitting on it and earning interest until they decide to pay me in October. I could buy another truck or employ more people. It affects anyone doing international work and it shouldn't do."

John Budge Haulage in Langport, Somerset, says the delays are causing such serious problems to its bottom line that it has stopped paying its UK VAT because it cannot afford it.

Joint business partner Vera Budge says: "We go over to Holland mainly and that seems to be the problem country at the moment. I haven't had any money from the Netherlands from October to December of last year yet. Our agent says they think we will be lucky if we get it paid by January 2011.

"We are talking at the moment about €50,000 [£41,240 at current conversion rates]. Nobody seems to understand the system. Why on earth did they bring it in so quickly? I don't think it was tested."

Budge says she also has concerns over exchange rate fluctuations between the pound and the euro: "When we were buying fuel in Holland last year the euro was worth 89p or 90p. By the time I get the money back it's only going to be worth 83p, so I have already lost around 6p a euro. That's another loss to us. Since this new system came in it has been diabolical."

Her husband John Budge says the fact the business is well established is the only reason it has been able to survive in 2010. But he adds: "It's still putting us in a very awkward situation and we are desperately short of cash flow."

UK HM Revenue & Customs has made it clear the problem has nothing to do with them and that it is paying foreign haulage companies within the agreed time frames. An HMRC spokesman adds: "We simply act as a conduit. Unfortunately it's not something we have any control over."

However, one VAT recovery specialist, who asked to remain anonymous, claims matters have improved since May. "I can't comment on Luxembourg and the Netherlands but Belgium is really picking up now," she says. "We have had some payments from June coming through now and earlier ones probably won't be far behind.

"Not [all member states] have been able to get ready in time. It's not as straightforward as people think; there's been a lot of work going on behind the scenes, on the hoops that countries have had to jump through."

The situation has infuriated the Road Haulage Association's head of international affairs, Peter Cullum, who says he wants evidence that shows bad payers are addressing the problem. "I see it in isolated cases, but in those isolated cases things have got pretty bad," he says.

"This is an EU matter agreed at EU level; the UK has just become an additional post box. Bad payers were always known and became a calculable business risk. Now people just don't know."

Hauliers tell CM that pleas to local MPs have yielded little in the way of information or clarity.

In light of the fact that the Netherlands kept cropping up during CM's investigation into the problem, we contacted the Dutch embassy and asked if it would comment on when the country expected to have sorted out its payment problems.

A spokesman says: "The economic section that would deal with this say they cannot say how long it will take before the problems have been solved as they were unaware of the problem and have had no questions from the public regarding this."

CM also contacted the European Commission and asked what it believed the current situation was with member states and when it expected the problems to be resolved. A spokeswoman says: "According to the rules laid down in the Directive, EU member states have between four to eight months to approve or refuse an application. There is then an additional deadline of 10 days to pay back the amount of VAT. Interest shall be paid if these deadlines are not respected."

She adds: "We are aware of specific problems faced by countries such as Luxembourg and the Netherlands. These countries have been unable to process applications from the United Kingdom. We are in contact with these countries in view of solving the issue as soon as possible.

"There is no precise timing, but we expect these problems to be solved by these member states as soon as possible."