SME owners are worried about closing over problems paying tax, according to a new study.
Around one in five SMEs, (22%), fear they will close due to problems paying tax in the next five years, according to the study by Premium Credit, a finance provider for businesses.
Around a quarter (24%) of SME owners and managers said they had worked for firms in the past that closed or went into liquidation because of tax bill issues. Two out of five respondents said they had missed up to four tax bill deadlines in the past three years. Over half (55%), said they have been late filing VAT and Corporation Tax returns in the past three years.
Business closure fears due to missed tax deadlines is unsurprising considering the financial penalties facing SMEs for delayed filings. The study showed that one in eight SMEs were very worried about fines from HMRC. Businesses can pay £100 for being a day late in submitting a Corporation Tax return, which can rise to 20% of the unpaid tax. For VAT, fines begin after payment is 15 days late and can go as high as 15% of the amount of VAT not paid on time.
The extent of the problem SMEs are facing in paying tax is seen in the growing numbers who may have to use HMRC’s Time to Pay (TTP) scheme, which helps businesses to pay tax arrears within three to six months. Around 30% this year say they may have to use TTP in the next three years. This is up from 12% in the previous study.
Todd Davison, co-founder and MD of Purbeck Personal Guarantee Insurance sees these tax payment issues with the SMEs his firm works with. “This absolutely reflects what we’re seeing with our own clients,” he says.
“A significant number are still carrying debt burdens that date back to the pandemic; Bounce Back Loans, CBILS repayments and liabilities deferred under the COVID-era moratoriums and support measures. Those obligations didn’t disappear; they were pushed down the road, and they’re now colliding with higher employer National Insurance, wage increases and frozen thresholds. For many businesses there simply isn’t the headroom left to absorb a large VAT or Corporation Tax bill on top.
“The result is that many of our clients now rely on Time to Pay arrangements with HMRC as a matter of routine rather than as a one-off lifeline. That’s telling. Time to Pay is a genuinely useful facility, but when instalment plans become a permanent feature of a business’s cash flow, it’s a sign the underlying pressure hasn’t been resolved, each new bill lands before the last one is cleared.”
