VAT Penalties Blog


Do your clients struggle to pay VAT ontime?


So it seems do several other businesses if some of the recently reported Tribunals are anything to go by.

No less than eight first tier tribunal reports were published on 1 November in respect of appeals against default surcharges. As these businesses found out, just failing to submit either their VAT return, VAT payment or both on time, generally results in having to pay even more money over eventually. None of the eight cases in question were won by the taxpayer.

Of the eight, seven were appealing against default surcharges of 10% or more. That means that these businesses have persistently had difficulty in paying their VAT on time. Generally, this was due to cash flow issues.

So, what could they maybe have done in order to avoid getting themselves into this position?  

Possible solutions that come to mind include:

  • Switching to monthly VAT returns 
  • Changing the stagger of the VAT quarter 
  • Requesting time to pay a single return 
  • Taking advantage of cash accounting 
  • Delaying  the issue of certain sales invoices

Although it might seem counter-intuitive, asking to complete monthly VAT returns can sometimes help a business’s cash flow. We have had clients that have done this and found that it has helped them to make their VAT payments on time.

Alternatively, if a business always has to meet some of its largest bills close to the time that its VAT payment is due, moving its VAT return stagger by either one month or two could be the appropriate solution.

Sometimes, a business knows that it will struggle to pay a particular return. It pays that return late and then is never able to catch up and falls into a pattern of late submissions and payments. If you think that this is something that could happen to your clients, advise them to contact HMRC prior to the date that the return is due for submission. They may be able to agree a time to pay programme for that specific return. By easing the pressure on cash flow at this one critical time, they may be able to avoid making future late payments.

If their VATable turnover is less than £1.35 million per annum and their VAT payments are up to date, they may be able to benefit from using the cash accounting scheme. The main advantage of the scheme is that they will not have to account for VAT on sales until such time as they have been paid by their customer.

Finally, if they generally issue invoices in the last week of the month, it may be worth waiting a few days and issuing them at the beginning of the following month. In respect of the final month of their VAT quarter, employing this tactic will mean that the liability to account for the VAT due on the invoice is pushed back three months.  Many businesses only pay their suppliers once a month, around the 15th -17th so delaying the issue of the sales invoice in such cases wouldn’t result in a later receipt of cash.

I hope that the above points may prove useful to some of your clients in these demanding trading conditions. If you want to discuss any of them further, please don’t hesitate to contact the VAT-Penalties team on 08458 502360 today.


VAT-Penalties Team


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