Overdue VAT Reaches Five-Year High

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.

A study, carried out by online business supermarket Funding Options using freedom of information (FOI) requests, also showed 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.”


Related Members Posts

What HMRC Says …

Background HM Revenue & Customs (HMRC) has a responsibility to ensure that individuals and businesses are paying the correct amount of tax or claiming the right amount of any HMRC benefits, for example tax credits. HMRC needs to make sure that everyone meets their responsibilities so they carry out compliance checks – sometimes referred to…

HMRC Set to Regain Preferred Creditor Status

Fears that Autumn Budget move may lead to harsher treatment of taxpayers and a more aggressive approach from the Revenue The Government has announced that, from 2020, HMRC will become a preferred creditor in insolvencies. Currently, an official ‘hierarchy’ laid down by the Insolvency Act, 1986, determines which creditors are paid first during an insolvent…

A Tasty Triumph

Subway franchisee’s appeal against VAT assessment is successful The First Tier Tribunal considered whether the VAT assessments raised by HMRC in relation to a Subway franchise were excessive and unreasonable. HMRC had based their assessments  on the fact that the standard rated sales during their selected periods of invigilation were higher than reported. The Tribunal…