Businesses in the UK are struggling to meet their tax liabilities on time, and currently owe the taxman £2.5bn in overdue VAT reports Harris & Co accountants Northampton.
Finance provider Syscap said that according to data provided to it by HMRC, the tax authority has managed to force the amount of overdue VAT down from £2.7bn last year – partly through the increased use of distraint (the right to seize business assets) and of external debt collection agencies.
HMRC almost doubled its use of distraint to recover VAT last year (year to end March 2012), using its powers to seize assets 4,746 times. It also more than doubled spend on external debt collectors to almost £13m.
Syscap points out that in many cases, VAT has to be paid out before the company has been paid by their customer. For example, most businesses are required to pay their VAT bills quarterly for the amounts charged on their invoices (rather than the amounts they have received) over that period.
In addition, unincorporated businesses such as sole traders and large partnerships have to pay half of their estimated annual tax liability on their profits upfront in advance, based on their previous year’s revenue.
Syscap CEO Philip White, said that for companies under financial pressure, accessing the necessary funds to pay a large tax bill, when they may not even have received payment from customers and clients yet, can be a huge challenge.
‘Even very profitable companies can find their cashflows tightly squeezed if their invoices aren’t paid promptly, but unfortunately for them their tax deadlines won’t wait. Historically businesses could borrow this money from their banks but that is increasingly difficult to do.
‘If a business does fall into arrears because they can’t pay, they’re caught between a rock and a hard place because HMRC can impose fines and interest charges and is becoming increasingly draconian in seizing assets in order to recoup the outstanding balance. They even have the power to shut down the business altogether. HMRC used to be relatively forgiving – through its Time to Pay Scheme but those days are gone,’ said White.