VAT receipts now account for 21% (£124bn) of all of HMRC’s tax income, up from just 16% during the recession, and the rise in VAT demands coupled with late payment issues is creating cashflow problems for small businesses, according to analysis by Funding Options
Businesses are normally required to pay the VAT they owe once they invoice customers, rather than after they receive payment for their services. However, if their suppliers are slow in paying, then they have to borrow to pay their VAT bills or risk going out of business.
Research into the construction sector, for example, reveals that companies are now having to wait an average of over two months – 69 days – to be paid by their customers - an increase of 8% in just one year. An increasing number of businesses are requesting finance specifically to cover cashflow crunches caused by VAT bills.
Conrad Ford, founder of Funding Options, said: ‘Too many small businesses are in real danger of collapsing under the weight of their VAT bills.
‘Despite the government’s focus on VAT, even the public accounts committee has accused the likes of Amazon and eBay of profiting from VAT fraud taking place on their platforms. Small businesses are therefore bearing more than their fair share of the burden.
‘With customers not paying their bills on time and banks still reluctant to lend to them, smaller businesses face a slippery slope.’
Report by Pat Sweet
