Why SMEs need to focus on tax their liabilities

As small businesses struggle to manage their cash flows, it’s imperative they remember their other financial responsibilities.

A failure to meet tax or VAT obligations can result in financial penalties, which can increase pressure on an already stretched cash flow.

It’s therefore essential that businesses find a way to deal with these recurring payments against a backdrop of cash flow trouble, late payments and unpaid invoices.

Late VAT payments could see a business incur a fine of up to 15% on the tax due, which could be a significant sum in certain cases.

It may even result in insolvency if a company is unable to find suitable recovery measures, especially as businesses are particularly susceptible to failure early on.

According to insurer RSA, more than half of businesses that are set up in the UK fail within their first five years – while the costs burden is set increase further in the coming years with the introduction of new tax rates.

When quizzed on the barriers to success and the threats they face, SMEs often list the tax system as one of the main issues to overcome – in research from LDF, some 44% of firms cited this to be the case.

However, dealing with tax or VAT disputes brings other issues that can influence daily business activity, as it can be a time consuming process.

With small business owners needing to devote time to these issues, it uses valuable time that could be better spent on driving sales, innovation and new products to market.

Despite this, it’s also important to recognise that a delay in paying outstanding VAT is not necessarily a result of a lack of finance, but is down to waiting for suppliers to pay for services already used.

Delays to payments are not uncommon, but time to pay services can help to ensure that VAT and PAYE arrears and unpaid tax issues are settled as quickly as possible.

Businesses in London have already been warned to watch their tax liabilities while those facing difficulty may explore the alternative finance options available to them to cover short-term financial issues.


By Phil Smith


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