Can’t afford to pay VAT? Here’s how to avoid making a late payment
Value Added Tax (VAT) is a consumption tax levied on goods and services in the UK. Business owners are required to collect this tax from customers when they sell a product or service, and to pay this to HM Revenue and Customs (HMRC) before a specified deadline.
If you do fail to meet a VAT payment deadline, you’ll be subject to paying interest on top of the VAT bill. And if you miss multiple deadlines, this penalty will only increase further. Here’s some tips on how to stay on track with your taxes and avoid those late payments:
Know What You Owe
In order to budget effectively for your VAT payments, you’ll need to know what you owe – and to stay on top of any changes to tax rates too. Liberis Finance Director, Tom Bason, says:
“In terms of planning ahead, definitely make sure to stay on top of any changes to tax, and the correct tax legislation that applies to you and your business. Make sure you’re on the right VAT scheme and whether that be a flat rate VAT scheme too. The HRMC site is best for keeping up to date with this, and speaking with your accountant on a regular basis.”
Usually, the amount of VAT you owe HRMC will be the difference between your sales and purchase invoices. However, depending on your business, you may be on the Flat Rate Scheme, or the Cash Accounting Scheme, in which case you’ll need to calculate what you owe slightly differently.
Keep An Eye On Your Deadlines
To ensure you don’t fall late on your VAT payments it’s crucial that you stay on top of your deadlines. So mark them in your company calendar, set reminders, and do everything you can to make sure the date doesn’t slip by without you noticing!
If you do know you’re not going to make a deadline, be sure to call HMRC before your payment date on 0300 200 3835. You may be able to avoid penalties by doing so, if HRMC can see that you genuinely can’t pay in full, but will be able to in the future.
As VAT deadlines can be spaced annually, without a tight enough budget it can be easy to lose track of funds and use them to cover other costs here and there instead. To ensure this doesn’t stop you from making your payments in time, always try and make sure you’ve got a little extra financial padding – just in case. You can build this up by looking for smart ways to allocate your budget and find you can make savings. You can read more tips on how to save in our Budgeting For Small Business Guide.
Seek alternative funding
If you do have a tax deadline coming up that you’re not going to be able to meet, you can seek short term business finance to help you cover the costs, and avoid paying any penalties or interest on top.
If you’ve been in business for over 4 months and take £2.5k or more in customer card payments each month, you’ll be eligible for a Business Cash Advance. With this alternative form of funding you’ll only pay back when your customers pay you, as repayments are taken automatically as an agreed upon percentage of your customer card takings. You can get an instant quote online, apply in 5 minutes and get a decision in 24 hours, so it’s ideal if you have a payment sneaking up quickly!