Accountants: Are your client businesses keeping their nose clean with HMRC?
February 15th, 2019
This particular blog is aimed primarily at my long-suffering accountant colleagues. The reason I ask this question is that, nationally, an increasing number of companies are not paying either their VAT or Corporation Tax on time. HMRC’s response has predictably been to take enforcement action which can result in winding up businesses which can then lead to the disqualification of individuals from holding directorships.
HMRC are, after all, an involuntary creditor of a business as they are reliant upon the business submitting VAT/tax returns on time and paying what’s due. They are not in a position to refuse to supply a late payer…
VAT payments are notoriously hard to keep track of because most clients assess their quarterly liability in-house and pay accordingly. Ideally, well-organised clients will have a separate bank account for VAT, splitting the tax from the sale when it is received and depositing that money into the account until it is needed. That’s the perfect position, but we all live in the real world. As such, unless you are running quarterly management accounts with your business owners, you will not actually know whether they have paid their VAT or not.
Why should companies be falling behind in ever-increasing numbers with these payments? Dear fellow professional, I refer you to my recent blog about the pernicious effect of late payment – you can read it here.
For companies operating with limited working capital, it can be difficult to pay the VAT bill when you have not received payment of the VAT invoice in the first place.
Corporation Tax is another potential problem. Once you have worked to maximise the tax relief available to your client, informed them of the actual amount they have to pay and issued them with the relevant paperwork the matter is out of your hands (although don’t rule out helpful email reminders from you to your client as the due date approaches).
Why pay particular attention to this now? Because research by the business finance provider Funding Options (here) has revealed that a five-year high in unpaid VAT has coincided with unpaid corporation tax surging every year over the same half-a-decade period.
Outstanding VAT hit £3billion in 2017/18, up from £2.5bn in 2013/14. Over the same five-year period, outstanding corporation tax has increased year-on-year from a low of £1.52bn to almost £2bn in the last tax year for which figures are available. This is a potential threat to part of your client base.
“HMRC could drive them out of business in pursuit of those bills,” warned Funding Option’s chief executive Conrad Ford.
The late payment of invoices is, indeed, identified as being part of the VAT problem. Although the government had set up the Small Business Commissioner to tackle the “persistent problem”, apparently only eight small traders have so far been helped with disputes.
We have a lot of experience advising businesses on how to deal with HMRC and unpaid tax, including negotiating Time To Pay agreements that are sensible and affordable by a struggling client. If you suspect a client may be having tax problems, call us for an initial view to see what the options are.