With BACS reporting £31bn owed to SMEs in late payments, the cash flow impact on small businesses is surely self-evident. Now the government is suffering delayed VAT receipts.
Businesses in the UK owe almost £2.6 billion to HMRC in overdue VAT as late payment from clients forces them to delay paying tax, according to leading finance provider LDF.
The value of overdue VAT has risen slightly over the last year, going from £2.55 billion in 2014 to £2.58 billion in 2015. LDF said that this number has remained consistent over the last few years, with the improving economy having little impact on the level of VAT arrears and late payment.
It says that one of the biggest drivers of VAT arrears is issue of late payment experienced by SMEs since the credit crunch, as customers continue to lengthen payment terms despite an improving economy. This has led some businesses to delay remitting VAT to HMRC while awaiting payment from clients.
Peter Alderson, Managing Director of LDF, said: “VAT bills can very quickly become a problem for SMEs if their clients delay paying their bills, and we understand that this is a real problem for many small businesses.
“Even though economic growth is accelerating and order books are growing, the problem of VAT arrears does not appear to have improved.
“It’s important that tax and VAT bills don’t start to compete with plans for investment — businesses need to plan ahead to make sure they know how their upcoming tax liabilities are going to be covered, allowing them to ring-fence the funds they use for growth.”