Overdue VAT hits five-year high
By Armstrong media
There has been a 22% rise in the value of unpaid VAT owed to HMRC by UK businesses to £3bn, up from £2.48bn the previous year, as late payments leave businesses with cashflow difficulties.
The study, carried out by online business supermarket Funding Options using freedom of information (FOI) requests, also show that outstanding corporation tax bills have risen 5% to £2bn, up from £1.9bn, over the same period. The company believes that the rise “may be partly driven by the growing problem of late payments by larger businesses to their smaller suppliers”. This behaviour is commonly seen in post-recession markets as businesses focus on day-to-day operations at the expense of long-term planning.
Currently, most businesses have their VAT bill calculated from when they invoice a customer VAT, not from when they receive the money. This can cause a significant tax liability that a business may not be able to pay until the customer completes payment of their bill. Unpaid VAT and corporation tax increase the likelihood of a business falling afoul of HMRC sanctions, which can include director disqualifications, asset seizures and winding up petitions.
The creation of the small business commissioner (SBC) last year was designed to help smaller businesses deal with late payments from clients. So far it has only helped eight small businesses with disputes about late payments from customers so far.
Conrad Ford, CEO at Funding Options, said: “Mounting unpaid VAT bills can cause serious problems for businesses ultimately. HMRC could drive them out of business in pursuit of those bills.
“Fortunately, when businesses do have cashflow issues and cannot pay their bills on time, there are alternative finance options available. One of these options is invoice finance, which can be arranged quickly and efficiently to ease the burden of bills like VAT.”