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February 14, 2014

Government VAT revenue breaks £100bn barrier

Government VAT revenue breaks £100bn barrierTax taken through VAT has broken through the £100billion barrier for the first time.

In the past year, HMRC's revenue from VAT payments increased by 6%, reaching a new high of £103.8bn, compared to £98.2bn a year earlier.

According to Syscap, the rise is part of a government shift towards collecting taxes from businesses and consumers through VAT rather than corporation tax – a change that is creating cash flow difficulties for businesses.

Most businesses have to pay their VAT after they invoice customers rather than after they get paid. This means any late payments by customers make it harder for smaller businesses to pay their VAT bills and, says Syscap, this means an increasing number of SMEs are getting into trouble with HMRC for late payment.

It says that whilst the total amount of tax taken through corporation tax has fallen by 12% over the past five years to £41billion, tax paid through VAT has risen by 19% during the same period. Total tax take over the same period is up by just 1.3%.

In addition, HMRC has wound down its Time to Pay scheme, which allowed businesses to defer payments.

Philip White, CEO of Syscap said: "Small businesses run a tight ship. Having to find the money for substantial VAT payments whilst their clients have yet to pay them for their work is forcing many businesses into a tight corner."

He added: "With the VAT rate at its highest level of 20% and banks unwilling to lend to SMEs, the funds they might need to pay a VAT shortfall has made the quarterly VAT payment deadline a real worry."

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