SMEs face tax bill crisis

August 23, 2023

There are 5.5 million Small and Medium Enterprises (SMEs) in the UK, representing three-fifths of the employment and around half of turnover in the UK private sector. That’s a big chunk of the nation’s total business activity, but with an average turnover of less than £400,000, SMEs are hugely exposed not only to economic headwinds but to the effects of tighter day-to-day cashflow.

It’s therefore no surprise that as business costs soar, a new study reveals more than half a million SMEs in the UK struggling with tax payment challenges, primarily Corporation Tax and VAT. Research from Premium Credit shows that around 10% of SMEs are presently unable to meet their tax commitments, which average more than £45,000.  Corporation Tax is the biggest worry for 54% of the businesses surveyed.  Going forward, 26% expect to have trouble settling one or more tax bills in the next five years.

Lack of cash is a killer – and SMEs topple first. Even if the longer term promises improvement, generating insufficient cash month-on-month to satisfy a smaller business’s main creditors – HMRC, lenders or landlords – will normally mean that a sorry end is in sight. Short term survival is only achieved by a miserable combination of late settlement with suppliers and non-payment of tax. HMRC has reported a £44.5 billion tax debt as of June 30, 2023, representing a 6% rise on  the previous year. It attributes the increase chiefly to SMEs facing cash flow issues forced by inflation.

Managers can’t afford to bury their heads in the sand: they MUST take action sooner rather than later to keep their enterprises afloat and, in particular, stay on the right side of HMRC:

  • Get on the front foot with tax. Engage and explore a ‘Time to Pay’ arrangement. Being unresponsive only aggravates HMRC and hastens a winding up petition.
  • Look at extending credit terms. Revisit repayment profiles for loans and propose realistic, achievable amendments. A loan that remains serviced, albeit differently, is still profitable for a lender.
  • Consider the moratorium framework to gain a short period of “breathing space” while pursuing a rescue or restructuring plan. During this legal moratorium no creditor action can be taken against a company without the Court’s permission.

SMEs unable to pay tax should seek professional advice on communicating with HMRC, the potential for debt restructuring, credit management, invoice discounting, overdraft planning, and contractual terms to explore a last-ditch attempt to stay afloat.

Buchler Phillips is a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.


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