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• 02 Jan

  Help Paying Deferred VAT

  

  Many businesses will have taken up the Government's offer of deferring their quartlerly VAT payment from Q2 2020 until 2021. This was just one of the financial measures announced to help support businesses through the Covid-19 pandemic.

  Help Paying Deferred VAT

  The Government's site says that the VAT can be paid in full on or before 31st March 2021 or businesses can opt into the VAT deferral new payment scheme when it launches in 2021. Alternatively businesses can contact HMRC if they need more help to pay.

  Whilst VAT deferrals are helpful, and will provide sufficient breathing space in some cases, they are likely to just move the problem forward in other cases. In some instances, the money will have been spent keeping the business going and there has not been a trading boom to enable enterprises to make up the deficit. Indeed, trading conditions remain depressed for many sectors.

  Therefore, the ongoing deferral of VAT can result in an ongoing problem for some businesses that will not recover to a point where they can then repay the amount. The nature of VAT, especially for a business with relatively little input VAT to offset, is that it can be a substantial amount of money c. 20% of turnover in some cases. This can cause problems when repayment finally falls due.

  A Solution To Pay Deferred VAT

  We can offer several solutions to companies struggling due to coronavirus, one of those is for companies that have deferred their VAT payments, beyond just further deferrals that just mark the issue forwards. If you raise invoices to other businesses, on credit terms, and you have not used those to raise finance, there is an option available.

  With an invoice discounting facility, you can release (typically 85% - 90%) of the value of those invoice, in cash to use for any purpose. This includes payment of those VAT bills. Its not like traditional forms of finance where you borrow money. The money is already yours, it is just tied up in unpaid invoices that your debtors haven't yet paid, the funding is repaid when they pay their outstanding invoices. Invoice discounting can release some of that locked up cash to be used to settle your deferred VAT bill.

  By Glenn Blackman