Is HMRC’s increased VAT take unfairly impacting small businesses?

Is HMRC’s increased VAT take unfairly impacting small businesses?

VAT receipts now make up 21% (£124bn) of HMRC’s tax take, up from 16% during the recession, but this can cause cash flow problems for small businesses

Is HMRC’s increased VAT take unfairly impacting small businesses?

VAT receipts now make up 21% (£124bn) of HMRC’s tax take, up from 16% during the recession, according to online marketplace Funding Options.

However, the government’s efforts to increase VAT intake have inadvertently created cash flow problems for some small businesses.

Small businesses are typically required to pay VAT upon invoicing customers rather than after they have received payment, so will often need to borrow money to cover its VAT bill.

Conrad Ford, founder of Funding Options explained: “Too many small businesses are in real danger of collapsing under the weight of their VAT bills.”

Research by Funding Options revealed that within the construction sector, as an example, companies wait an average of 69 days before being paid by customers.

Ford explained that businesses are forced to borrow money while contending with late payments from customers and banks unwilling to lend to smaller businesses.

Smaller businesses may then find themselves facing a range of sanctions from HMRC due to late payments, including director disqualifications, asset seizures, and even winding-up petitions.

“Despite the government’s focus on VAT, even the Public Accounts Committee has accused the likes of Amazon and eBay of profiting from VAT fraud taking place on their platforms. Small businesses are therefore bearing more than their fair share of the burden.”

The government has recently renewed its focus on VAT, with the Chancellor pledging a crackdown on online marketplace VAT fraud by large multinationals like Amazon and eBay in the Autumn Budget.

The Office of Tax Simplification outlined a series of suggested reforms to simplify the VAT system, particularly with reference to the VAT registration threshold, administrative changes and complexity surrounding the types of supply subject to VAT relief.

As European Union rules dictate much of the UK VAT system, Brexit will likely lead to a shakeup in the VAT regime in upcoming years.

Related Articles

HMRC property raids reduce by 30% through use of AI and big data

HMRC HMRC property raids reduce by 30% through use of AI and big data

6d Alia Shoaib, Reporter
Small businesses feel penalised by “intensive” HMRC investigations

HMRC Small businesses feel penalised by “intensive” HMRC investigations

1w Alia Shoaib, Reporter
HMRC joins international coalition J5 to combat tax crime

HMRC HMRC joins international coalition J5 to combat tax crime

2w Alia Shoaib, Reporter
Brexit: HMRC estimates “max-fac” model or “no deal” could cost £20bn

Brexit & Economy Brexit: HMRC estimates “max-fac” model or “no deal” could cost £20bn

1m Alia Shoaib, Reporter
HMRC scaling back digital projects to ‘release project capability to EU Exit work’

Brexit HMRC scaling back digital projects to ‘release project capability to EU Exit work’

3m Alia Shoaib, Reporter
HMRC rate of return on large business investigations increases by 17%

HMRC HMRC rate of return on large business investigations increases by 17%

3m Emma Smith, Managing Editor
HMRC’s refusal to raid top Tory donor Lycamobile to be investigated by MPs

Big Four HMRC’s refusal to raid top Tory donor Lycamobile to be investigated by MPs

3m Alia Shoaib, Reporter
HMRC opens Making Tax Digital Income Tax pilot to all self-employed

Business HMRC opens Making Tax Digital Income Tax pilot to all self-employed

4m Lucy Skoulding, Reporter