Businesses owe £2.6 billion in unpaid VAT bills

Tax deadlines continue to pose a struggle for small business owners after it is shown they owe billions in unpaid VAT bills.

UK businesses now owe close to £2.6 billion in overdue VAT, as they continue to struggle to find the cash to meet critical tax deadlines, says Funding Options.

Funding Options adds that the number has remained stubbornly high over the last few years despite the growth in the UK economy during the period, rising slightly from £2.55 billion in 2014/15 to £2.59 billion in 2015/16.

Funding Options says that late payment has become an increasing concern for small businesses and is one of the key drivers behind the rising amount of VAT now owed to HMRC. Funding Options warns that businesses struggling to pay their VAT bills on time could face serious consequences.

HMRC has the power to award late payment penalties, send debt collectors to the premises and forcibly seize assets. Funding Options explains that VAT is paid on the amount billed to clients, rather than the company’s actual revenues – regardless of whether it has been paid or not.

Alternative finance the answer?

If a client pays late, the business is still required to pay VAT on the invoice. Businesses may find themselves without the cashflow needed to pay the VAT bill, especially if the payment they were waiting for from their client is significant in size. This can be a particular problem for SMEs, who typically have more volatile cashflows than larger businesses.

Businesses may pay late if they have already allocated the budget to other requirements such as updating equipment, refurbishments or training for staff. Businesses may also look to save money – preferring to wait and pay the invoice the next month when more capital is available.

Businesses hoping to prepare for any fallout from the EU referendum may also have chosen to push back payments in order to save or invest in other areas of the businesses.

With increasing numbers of businesses struggling to find the cash to meet the VAT deadline, many are now turning to alternative finance in order to help with their cashflow problems. Funding Options says that alternative finance solutions, including products that allow businesses to spread the cost of tax bills over a longer time period, are becoming increasingly popular amongst small businesses.

Conrad Ford, CEO of Funding Options comments, ‘Businesses not being able to pay their VAT bills on time is a problem that is not going away.

‘However, by having to pay late they risk having their assets seized or their business shut down altogether.’

Ford adds, ‘Alternative finance offers a vital solution to this problem – allowing businesses to find the cash in order to pay their bills on time and invest in their business.

‘The ongoing fallout from Brexit could hamper small businesses further, particularly for those businesses which export their products outside of the UK as the fall in sterling affects currency exchange rates.’

He concludes, ‘Paradoxically, paying your VAT bill late is not necessarily a sign that the business is doing badly.If a business is doing well but is not being paid on time, they still might not have the cash in order to pay the VAT bill.’

Further reading on VAT bills

Owen Gough, SmallBusiness UK

Freddie Halvorson

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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