UK businesses owe £2.5bn in VAT to HMRC

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AROUND £2.5BN IN VAT is owed to the public purse by UK  businesses struggling to meet their bills, according to independent finance provider Syscap.

Information provided to Syscap by HM Revenue & Customs shows the taxman  managed to drive down overdue VAT from £2.7bn last year to this year’s £2.5bn partly through increased use of business asset seizures – known as ‘distraint’ – and external debt collection agencies.

HMRC almost doubled its use of distraint in the recovery of VAT over the year  to March 2013, using the powers 4,746 times. It also more than doubled its spend on external debt collectors to almost £13m.

Frequently, late VAT payment is caused by companies having to pay before  receiving payment for goods or services provided to clients. Many businesses, for example, 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.

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 chief executive Phillip White said: “Even very profitable companies can find their cash flows tightly squeezed if their invoices aren’t paid  promptly, but unfortunately for them their tax deadlines won’t wait.

“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.