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• 01 Mar

  Need Help Paying VAT HMRC Tax Bills?

  Do you need help paying your VAT tax bill from HMRC? If so, we may be able to offer you some options.

  Help With VAT Payments

  Already we are in March, and coming up to the end of the first VAT (Value Added Tax) quarter of 2018. VAT returns and payment of outstanding Value Added Tax will be required one month and 7 days after the end of the period. There's not much time between the end of the quarter and the deadline for payment, especially if you have not set aside the funds to make the payment. You may need help with VAT payments, and there are some options.

  Only yesterday I wrote about Toys R U going into Administration. According to the news, they are facing a VAT bill in the order of £15 million, an eye-watering amount of tax to have to find. The amount of your bill may be much smaller, but if you haven't got the cash it's just as difficult to pay.

  How Value Added Tax Works

  The principle behind Value Added Tax is that, if you are registered for VAT, you charge it on your sales (normally at 20% for most things, although not all goods and services attract the same rate of VAT - and some may be completely exempt), this is your "output VAT". You then pay VAT on your purchases (called "input VAT" - again not all purchases will have the common rate of VAT charged, and not all will qualify to be offset). You then net the two figures: Output VAT - Input VAT = VAT due. You have to pay over the balance due to HMRC, by the deadline. So all businesses registered for VAT are acting as quasi-tax collectors. If you need advice you should contact your accountant (or we can recommend one if necessary).

  An Example Of The Problem Of Spending Tax Reserves

  The problem is that as you trade, raise invoices and get paid, you are gradually collecting VAT amounts that will ultimately need to be paid over to HMRC. Setting those amounts aside is good practice but many companies do not do this and can end up spending the tax money. The temptation is to dip into the tax reserve that you have collected, in order to smooth out your company's cash flow.

  For example, if you raised £50K of invoices, and added 20% VAT, that would result in an invoice of £60,000. When that invoice is paid, £10,000 of the payment should be set aside and reserved for your VAT payment to HMRC (perhaps less any input VAT you can offset - ignored to simplify this example). So the remaining £50K would be available to use in your business (ignoring other taxes). Let's say you paid the whole £50K out in payments to suppliers, staff wages and paying yourself. This would leave you with the £10K VAT money in your bank account. So the temptation is now to use that, or some part of it in order to pay other expenses that arise e.g. to finance purchases relating to fulfilling further orders. As you may not need to pay this money to HMRC for a number of months, the temptation to use it can be very great.

  However, if you are a fast-growing business, using VAT reserves to help fund your cash flow can be disastrous. The more you sell, the more working capital you need to deliver against those sales, and the problem can escalate out of control.

  A Solution To Help Pay Your VAT Bill

  If you have got yourself into this kind of situation, we may be able to help you raise finances in order to overcome the problem and pay your VAT bill. Using invoice finance can release up to 85% (more in some cases) of the cash that is tied up in unpaid invoices. You can use this cash for any purpose, including paying HMRC so if you had £50K of invoices outstanding, as in the example above, you could potentially access up to £42.5K via invoice finance, without having to wait for your customers to pay. Facilities can be arranged within a few days but don't leave it until the payment deadline is near.

  In the first instance, to prevent a problem, you could use this money instead of using your VAT reserve, in order to fund your working capital requirements. However, if you have already dipped into the money your should have put aside for tax, this kind of prepayment may help to fill the hole.

  Some invoice finance facilities can be "selective" such that you choose which invoices to receive funding against, and you have no obligation to use the facility again. This could be helpful if your situation is temporary, however having that additional working capital going forward may be a more attractive option to many companies.

  Even in circumstances where you have already used invoice finance, and you still have a tax bill looming, we may be able to help you secure some form of business loan, or top up finance, to get your company back on track.

  If you need some help, please speak to Sean on 03330 113622 (or use the green application form on this page) and he will see what can be done to assist you.

  By Glenn Blackman