UK businesses currently now owe £2.6 billion to HMRC in overdue VAT as many continue to struggle to find the cash to meet their VAT bills, according to LDF, a leading finance provider.
LDF says that in just one year, the amount owed to HMRC in overdue VAT has increased by £100 million, up from £2.5 billion in the previous year.
VAT bills are issued on a quarterly basis and are calculated on the amounts billed on a company’s invoices, rather than the amounts it has actually received from customers over that period. This can pose a big problem for businesses that are still waiting for payments on which hefty VAT bills are due.
Peter Alderson, Managing Director of LDF says the increase in VAT to 20 percent has been a real tipping point: “More and more businesses are facing VAT bills with trepidation.
“The recession saw many fall behind with their VAT payments and the recent economic upturn has done little to ease the burden. Some are still dealing with a backlog of unpaid VAT and other tax bills whilst scrambling to source funding for upcoming tax bills.
“The situation won’t improve quickly unless customers start paying faster. Late paying customers cause huge cash flow problems even for successful and fast growing businesses.
“Previously businesses could rely on borrowing from the bank to fill the gap, but since the recession this has become increasingly difficult to find. This has left many businesses, especially smaller ones, in real difficulty.”
During the early days of the credit crunch HMRC allowed businesses to defer VAT payments through its time to pay scheme, although the scheme has fallen out of use since 2011.
LDF says that VAT bills aren’t the only financial burden facing businesses – the looming July 31st tax deadline for sole traders and partners is also causing a headache for many. Businesses have to find the cash to cover half of their estimated annual tax liability on their profits in advance, based on their previous year’s revenue.
According to LDF, a growing number of businesses are turning to finance solutions as a way to ensure they can cover their upcoming tax liabilities, helping to smooth out their unpredictable cash flow.