Unpaid tax and VAT mounts as SMEs reveal cash flow struggles
HM Revenue and Customs is owed £4.37 billion in unpaid VAT and Corporation Tax, new figures have revealed.
It highlights that many businesses are struggling to fulfil their tax obligations, while the situation has worsened considerably in the last few years.
While £1.82 billion was owed in corporation tax for the 2015-2016 financial year, that figure rose to £1.89 billion for the following 12 months. On top of that, £2.48 billion is owned in unpaid VAT.
Businesses report that late payments are a major factor for the tax liabilities, as their cash flow is adversely affected and they are therefore unable to pay on time.
The Government is actively working to cut late payments across all sectors by introducing new regulations, but the situation is still worsening.
For instance, construction firms wait an average of 69 days for payments, according to research from Funding Options - this causes widespread issues across the sector, and was highlighted by the recent collapse of building giant Carillion, where thousands of small contractors were unpaid.
Other firms are being asked to pay VAT before receiving any payments from their customers, as payment for VAT bills is due quarterly based on invoiced figures, not the amounts actually received.
A failure to meet VAT obligations can result in director disqualifications or a number of other penalties up to winding up orders.
There are support options for those that are struggling to meet their tax liability, with HMRC Time to Pay services available to deal with winding up petitions, unpaid tax and outstanding payment demands.
The key is too act quickly and not to ignore the situation that might be developing, as things can easily spiral out of control if not given enough due care and attention.
By planning ahead, firms can ensure they have enough finance to meet their tax liabilities, or they can focus on methods of finding the necessary finance.
By Phil Smith