TaxCorporate TaxHuge rise in reliance on VAT by instalments

Huge rise in reliance on VAT by instalments

Number of companies spreading out their VAT liabilities goes up, as they try to avoid the threat of going under

HMRC

HMRC: no plans to relax the rules

Advisers say there has been a spike in the number of companies spreading out
their VAT liabilities as they try to avoid the threat of going under.

Observers believe quarterly VAT bills due at the end of July will be a major
test of their resilience as the downturn begins to bite.

Paddy Behan, head of indirect tax services at
Mercury Tax Group, said:
‘The word on the grapevine is that there has been a huge upsurge in the number
of businesses setting up these arrangements.’

Time to pay agreements relieve some of the pressure on companies by allowing
them to pay their quarterly VAT bills in instalments, with interest added.

Businesses have been urged by experts to smooth out the effects of the
taxman’s demands as the harsh economic conditions show no signs of letting up.

‘We are advising more people on time to pay arrangements,’ said
PriceWaterhouseCoopers tax
partner Stephen Coleclough. ‘In the current environment it is better for people
to go to the taxman and say, “We have a temporary cashflow problem”.

‘From the Revenue’s perspective these arrangements make sense because they
will lose a whole income stream from VAT, PAYE, etc if the business collapses,’
he added.

One insolvency expert said the added pressure of quarterly VAT bills could
lead to a spike in failures in the near future.

‘The end of July and the beginning of August could be a very interesting
time,’ said Nick Hood of Begbies Traynor.

HM Revenue &
Customs
said it had no plans to relax the rules by giving companies
extensions on paying their quarterly VAT bill, but confirmed that businesses had
the option to spread out the payments.

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