Crunch highlights cash flow

Bill Dodwell, tax partner at Deloitte

Economic instability is forcing a growing number of corporations to look at the way in which cashflow management is applied.

Bill Dodwell, tax partner at Deloitte, said the consensus among businesses prior to the collapse of global markets was to relegate cash flow management behind more compliance-related areas.

‘People haven’t previously focused on it nearly as much as what they are now,’ he said.

VAT systems are of particular significance to companies as this has a direct impact on cash flow from sales produced and according to Dodwell, resulting VAT numbers have the potential to be ‘huge’.

‘Companies haven’t bothered to look at whether their system is proper. It’s about ensuring you’re paying the right amount of tax at the right time,’ he said.

During a time when credit isn’t as readily available, companies will be seeking to reclaim VAT as early as possible, further emphasising the need to re-evaluate. Dodwell said the spike in the volume of client enquiries isn’t unique to individual sectors and Deloitte are advising both SMEs and larger corporations.

Richard Mannion, national tax director at Smith & Williamson, said the rise in the number of enquiries around this has been confined to property sector clients, but expects a sharp increase over the coming 12 months and a spread to other sectors.

Up until recently many businesses in the property sector had been producing solid growth, he said, but the paying of the next tax bill will be attributed to less favourable conditions now being experienced.

Mannion said any well run businesses should be aware of its cashflow management system. ‘It’s critical for people to be doing cashflow very carefully. It has come as a shock for business plans put in place last year which hadn’t factored in the downturn in the market,’ he said.

Companies will also need to plan for proposed changes to electronic filing, including software compatibility in recording of VAT and corporation tax, due to take effect from 2011.