Late payments from customers mean VAT can cripple small business cashflow
VAT receipts now account for over a fifth (21 per cent, £124bn) of all of HMRC’s tax income, up from just 16 per cent during the recession, says Funding Options, the online business finance supermarket.
The Government’s focus on increasing tax through VAT is creating cash flow problems for businesses. 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.
Unable to collect cash from late-paying customers, businesses have to borrow to pay their VAT bills or risk going out of business.
Research from Funding Options 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 per cent 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, says: “Too many small businesses are in real danger of collapsing under the weight of their VAT bills.”