If only the Goverment’s right hand knew what it’s left hand was doing…
This article by Tax-News.com highlights a shocking cycle of events whereby some SMEs that are paid late by their suppliers could end up with the bitter double whammy of additionally being fined by HMRC as a direct consequence.
HMRC is under pressure to generate more revenue, no doubt as part of the government’s drive to cut the deficit, and while large organisations with battalions of tax lawyers who are able to run rings around the overworked HMRC staffers are able to reduce their tax bills (unethically but legitimately), SMEs with more humble resources are considered a softer target.
In 2014/15 HMRC investigations into the tax affairs of SMEs generated an extra £470m for the govt’s. coffers. Coincidently the tax take from investigations into large businesses fell by £500m between 2013/14 and 2014/15.
Part of the reason why SMEs are flagged to HMRC is because they have cashflow issues that cause them to pay their taxes late. Late payment of a tax bill alerts HMRC which subsequently investigates and fines. It’s an especially tough irony that the late payment of a tax bill might in some instances have been precipitated by invoices that are / were overdue resulting in the cashflow problems that caused the tax bill to be paid late in the first instance.
HMRC also knows that SMEs (suppliers) are a softer target than larger companies (customers) because they don’t have the resource or expertise to defend themselves so effectively in an investigation.
So what to do?
There are two actions an SME / supplier can take:
- Join the Federation Of Small Businesses. One of the member benefits of the FSB is something they call Tax Investigation Protection. This is effectively an insurance policy against investigation by HMRC. Should The Revenue come knocking the FSB will go into bat on your behalf, full details are available on the FSB site here. Small businesses can benefit greatly from this.
- Small businesses need to do as much as they can to reduce the chances of being paid late in the first instance. This means taking some action.
With regard to this second point, use of credit reference agencies to check the credit worthiness of customers before doing business with them is a good start but even this will only give some basic numbers. By sharing and gaining access to contextualised data related to specific instances of late payment businesses can both contribute to and gather the vital information they need to deflect late payment before it even becomes an issue. But to do this the business community must act together in its common interest and this is where The Late Payment Directory fits in. To find out more, click here.
After all, a rising tide floats all boats.
Prevention is better than cure.