ACCOUNTANCY FIRMS that require funding to pay for tax bills have dramatically increased in the last year.
Practices that have requested funding has increased 40%, according to independent finance provider Syscap.
The company blames the increase on a 31 January deadline by which firms have to pay their previous year's tax bill. They must pay their fourth quarter VAT bill by 7 February.
Syscap, which believes HM Revenue & Customs is winding down its tax deferral scheme Time to Pay, said this year it has seen a higher proportion of requests for loans below £1m.
Philip White, CEO of Syscap, said: "HMRC is under a lot of pressure to get the tax that they are owed in as quickly as possible. That means they have to put a lot of pressure on all businesses to pay their tax bill as quickly as possible.
"At the start of the recession accountancy firms were able to use the HMRC's 'Time to Pay' process to defer tax payments that they couldn't pay out of cash. Unfortunately, that scheme has been winding down.
"Even hugely profitable accountancy firms can find themselves short of cash – especially if customers are slow to pay. The result is we are seeing an ever-increasing demand from accountancy firms for a simple funding product to cover tax payments and protect precious cash and working capital."
On 31 January all accountancy firms must make a payment on behalf of their previous year's tax bill. Syscap said this year it has seen a higher proportion of requests for loans below £1m as the need for funding for small and mid-sized firms continues to grow.
There is a similar problem amongst practising firms of Solicitors. Is this endemic in the professions or is it because too many practitioners forget they are also running a business?
How much is tied up in WIP (real) and debtors? Talk to me.
Posted by: Eric Golding, 31 Jan 2013 | 16:51
Why must "all accountancy firms pay their tax on 31 Jan"? My accountancy firm has a 28 Feb year-end and pays its tax on 1 December. Having to include WIP in taxable profits makes a big difference, but it's hardly a surprise to accountants, and should be an incentive to bill more regularly or get upfront payments, or at least standing order payments monthly. Taking salaries as a direct cost, surely most accountancy firms achieve a 100%-200" mark-up on their main cost, so they really shouldn't be short of cash (but check the staff car park for Jags)...
Posted by: Mark Andrews, 31 Jan 2013 | 19:18
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