VAT arrears total £2.6 billion as late payments cause delays

Businesses in the UK owe a staggering £2.6 billion in overdue VAT, with the late payment of invoices deemed to be one of the major reasons for it.

Research from finance provider LDF discovered that HMRC is expecting the payments, but that the process is being slowed because companies are left waiting on their clients for payment.

As a result they are not paying their tax and the situation shows little sign of improvement from 12 months ago when the figures were similar.

Overdue VAT totalled £2.55 billion in 2014 while it has now increased slightly to £2.58 billion – LDF states that the figure has now remained steady for a number of years.

This does mean that the improving economic situation that has been noted across the UK is having a relatively small impact on payment processes and VAT arrears.

The study found that many customers are continuing to lengthen their payment terms and this led to some companies delaying the sending of their VAT payments until finances were coming into their accounts from their clients.

According to LDF, VAT is paid on the numbers billed to clients and is done regardless of whether payment is received or not.

This therefore means that payments are required, even in instances where a business may not have the cash flow to do so.

VAT can be an issue for small businesses as arrears can build up quickly and it can cast a shadow over the business until it is resolved.

Careful financial management can help to nullify the issue but there is often little a business can do to speed up the process if it is waiting on a client for payment.

It’s vital that a business is still able to grow and prosper without having to be concerned with its tax liabilities, although this is not always possible.

If a firm is unsure if it running efficiently, then restructuring could be one solution as it should cut any unnecessary spending and identify any long-standing issues with the way the business is being run.

By Phil Smith

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