Tag Archive | "cash flow"

SMEs may be forced to file their VAT returns online

Accountants for contractors may be interested to learn that HMRC has launched a consultation on the proposal to make online filing of VAT returns compulsory for firms with a turnover of under £100,000.

The Revenue wants more businesses, and individuals, to go digital and conduct their transactions online.

If approved, the VAT filing requirement will come into force next April. HMRC would also like to see all businesses use online systems for registering and deregistering for VAT and amending their company details. There are no plans to make the registration requirements mandatory yet.

The Revenue has been moving business taxation online since 2006 and online is fast becoming the default channel for business taxation. Lord Carter said in his original review of online services that legislation was necessary to combat general business inertia and that this should take place in stages.

HMRC says that processing will be both quicker and more accurate once filing is conducted online and that should appeal to companies.

However, the FPB says small businesses are paying the price of inadequate online tax systems and red tape continues to hold back SMEs ability to comply with tax regulations.

Andrew Needham, the tax advisor to the FPB, said the tax system includes complex and cumbersome online procedures. Furthermore, he said that HMRC employees received no training on dealing with VAT returns submitted electronically; a situation he found mystifying.

It now takes up to 50 days to complete VAT registration due to extended verification procedures and small businesses are suffering. Late payment of PAYE attracts penalties but small businesses are battling with the worst cash flow problems in 20 years.

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Are cash flow problems an excuse for late payment of taxes?

Research from SFP, a leading solvency firm, has shown that tax bills are the largest cause of insolvencies amongst SMEs. In fact 75% of insolvencies cite HMRC as the largest creditor.

This could have happened because companies taking advantage of the Revenue’s Time to Pay initiative failed to make provisions for future tax bills.

Simon Plant, a partner at SRP, said Time to Pay is a ticking time bomb that no-one wants to talk about. HMRC are now calling in their debts and companies that have not accrued for their liabilities face major problems.

He went on to say that there is an increasing trend in the number of companies that owe between £125,000 and £500,000. Recent data from HMRC shows an increase in the number of firms refused TTP arrangements and the Revenue attributes this to companies applying for repeat arrangements.

However, things could be about to change after a recent tribunal ruled that problems with cash flow did constitute a reasonable excuse for late settlement of tax liabilities.

Alan Kincaid had appealed against a Revenue decision to take away the gross payment status of his company, A K Construction. HMRC said Kincaid had fallen more than a year behind with some of his payments and therefore he did not meet its compliance test. Without gross payment status, Kincaid had to pay an automatic 20% levy on gross payments from contractors and this led to his cash flow problems.

John Walters, the presiding tribunal judge, ruled that Kincaid had done everything possible to avoid this possible and his cash flow problem was a reasonable excuse.

One of the directors at McGrigors, Heather Self, said the reasonable excuse defence has been used in VAT cases for some time but it is reasonably new in direct tax. However, we now have people with commercial experience sitting in tribunals and there is a developing trend towards taking a commercial approach when considering a reasonable excuse.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

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Time to make banking faster?

For the last couple of years, SMEs and contractor accountants have had difficulties accessing finance and the problem still isn’t going away, says Ed Moss from the Manufacturing Institute.

Despite the banks assuring us that they are open for business and ready to help, people still don’t trust them.

Could that situation be about to change? The European Commission recently announced the introduction of a European Union Small Business Act. Included in the policies is an action plan intended to improve access to finance for SMEs’, help them enter the venture capital markets and raise awareness of SMEs potential amongst investors.

One measure that might help small business cash flow is the requirement for public sector organisations to settle their debts within 30 days. The public sector has been criticised for a long time for its tardiness in paying suppliers; many of whom are small enterprises who have been struggling to keep afloat since the start of the recession.

Ed Moss also pointed out that banks could help SMEs if they speed up the cheque clearing system. If you pay a cheque into the bank on Monday, you have to wait until Thursday before it clears. In Sweden and Greece, you pay the cheque in at 10:00 and it’s cleared by 12:00 the same day or the bank is fined.

Moss made his comments after the FPB revealed that over 200 entrepreneurs are supporting the Get Britain Trading campaign designed to promote the contribution small enterprises make to the country’s economy.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Pequeño tributo a las increíbles fotos de Toni V by Viernest

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20% interest + 1.25% handling fee to settle your tax bill!

HMRC may start forcing people to pay 20% interest to settle their tax liabilities rather than using the government backed tax deferral scheme.

The Revenue has already encouraged tax payers to look at other credit options before applying to defer tax and they are now demanding to see credit card bills which could charge anything up to 20% interest on unpaid debts. The current average interest rate is 18.8%

One of the tax partners at UHY Hacker Young confirmed that his clients have been requested to produce bills from their credit card companies in order to justify their application for time-to-pay. It now appears to be the norm for HMRC to advise clients to return to their bank or make a credit card payment before they will be allowed to take advantage of the time-to-pay tax deferral scheme, he added. To add insult to injury, the Revenue charges an extra 1.25% handling fee for processing credit card payments.

The Time To Pay scheme was introduced in November 2008 to help businesses that were struggling with cash flow problems. Since that time, 6.4 billion pounds worth of taxes have been deferred.

The Revenue claims that there has been a fall in demand for the scheme; however it has also increased the amount of applications that get rejected. In 2009, 2.6% were rejected; in the past three months, the number rose to 7.4%.

It seems that HMRC wants businesses to max out their debts before they can get any government assistance and yet this will compound the problem for businesses that are struggling already.

A Revenue spokesman said the department had not changed its policy and it has always needed to be satisfied that all revenue raising avenues have been explored before agreeing to make a Time to Pay arrangement.

© 2010 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: help with a caption please? by Jon Ovington

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Contractors forced to accept new credit terms

Larger clients are forcing SMEs, contractors and freelancers to accept new credit terms, according to Touch Financial. The invoice finance broker recently surveyed more than 200 small businesses and found that more than 50% have had their credit terms amended in the past 12 months.

A massive 89% of those affected felt they had no option but to accept the changes even though most of them said they were imposed midway through a contract period. Although suppliers are within their rights to refuse to accept such changes, the majority of them are clearly worried that a refusal will lead to them losing that customer.

4 out of 10 of the firms surveyed feel that the future growth of their business is in jeopardy due to changed terms. Simon Carter from Touch Financial remarked that it cannot be right for larger entities to force changes in terms and conditions without any form of negotiation especially after a contract has been signed.

Many small businesses are still struggling to recover from the credit crunch and with cash flow tight; delaying invoice settlement for whatever reason has to be bad news. But companies actually changing terms mid-stream seem to be extremely callous.

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Image: Headlock and Driving by Mike “Dakinewavamon” Kline

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