The Government’s focus on increasing tax through VAT is creating cash flow problems for businessesaccording to new research from Funding Options. Businesses are normally required to pay the VAT they owe once they invoice customers, rather than after they receive payment for their services. Corporation Tax, on the other hand, is only charged once a business actually collects the money for their services. VAT receipts now account for over a fifth (21%, £124bn) of all of HMRC’s tax income, up from just 16% during the recession,
Unable to collect cash from late-paying customers, businesses have to borrow to pay their VAT bills or risk going out of business.
Research into the construction sector, for example, reveals that companies are now having to wait an average of over two months – 69 days – to be paid by their customers, an increase of 8% in just one year.
Funding Options explains that HMRC can hit smaller businesses with a range of sanctions for late VAT payments that can end up crippling them. These include director disqualifications, asset seizures, and even winding-up petitions.
Funding Options also adds that an increasing number of businesses are requesting finance specifically to cover cashflow crunches caused by VAT bills.
Conrad Ford, Founder of Funding Options said“ Too many small businesses are in real danger of collapsing under the weight of their VAT bills.“Despite the government’s focus on VAT, even the Public Accounts Committee has accused the likes of Amazon and eBay of profiting from VAT fraud taking place on their platforms. Small businesses are therefore bearing more than their fair share of the burden.With customers not paying their bills on time and banks still reluctant to lend to them, smaller businesses face a slippery slope.”
“We are seeing more and more businesses come to us citing VAT bills as the reason they need extra finance.”