Firms urged to manage their VAT to help with cash flow

That’s the message from Matthew Orange from Dyke Yaxley Chartered Accountants, in Shrewsbury, who said managing indirect taxes could have a direct impact on a company’s cash flow.

“The Chancellor has already announced that all VAT payments will be postponed for three months until the end of June 2020 which should help around two million VAT payers, and delay tax arising on trading from before the crisis hit.

“This VAT will then be due by the end of the tax year as determined by their VAT filling deadlines, but it’s important to remember to cancel any direct debits as otherwise HM Revenue and Customs will continue to collect payments as usual.”

Mr Orange said businesses who had bad debts may also be able to claim back some VAT that has already been paid to HMRC.

“Generally speaking, when a business has not been paid and six months have passed since the due date, the business may be able to reclaim some or all of the VAT back.

“If you’re anticipating cash flow shortages caused by customers taking longer to pay, it may be worth considering the VAT cash accounting scheme which means you only need to pay the VAT to the Revenue when your customer has paid you.”

Mr Orange said businesses worrying about not being able to pay an upcoming VAT bill could ask for a ‘Time to Pay’ arrangement.

“A TTP allows a business suffering temporary financial difficulties to pay its tax liabilities over an extended period of time rather than on the day they are due – and if the VAT deferment scheme is not extended by the Government beyond June 2020, this should be the first port of call for businesses.

“If you’re concerned about cash flow or other working capital issues, seek professional advice to help you navigate the many grants and loans which have been made available during this unprecedented time.

“They can help you to prepare cash flow forecasts and understand the potential short and medium-term implications of the coronavirus crisis.”