SMEs struggle to pay tax bills

T​​​​​​​he biggest tax bill issue currently is Corporation Tax which more than a fifth (22%) say they are struggling to pay while 12% say they struggle to pay VAT. However, 20% admit they find it difficult to pay both.

The study by the leading provider of finance for businesses found SMEs are most likely to react to tax bill pressure by taking on more work. One in three (32%) said that was their strategy for being able to pay tax bills.

Around a quarter (23%) say they will attempt to raise funds from existing investors while a fifth (21%) will borrow money to meet tax obligations. However, job losses remain a possibility with 13% saying they may have to lay off staff.

The research for Premium Credit, which enables companies and business owners to spread the cost of their VAT, Corporation Tax and self-assessment tax payments for up to a year, shows firms are feeling the effect of last year’s Employers’ National Insurance increase and the higher minimum wage.

Just one in five (20%) say they have been unaffected by overall taxation changes. Around 36% say the increases reduced profits while more than a third (34%) say higher costs have meant reduced recruitment. About a fifth (19%) say those measures have made trading more difficult and cut revenues.

Problems paying tax bills are not new – around 53% say they have struggled to pay bills in the past three years with a quarter (24%) struggling to pay both VAT and Corporation Tax. Around 21% have faced challenges paying Corporation Tax and 13% VAT.

For around two out of five (37%) the size of the bill they struggled to pay was more than £50,000 including 12% who struggled to pay bills of more than £100,000. However, despite tax issues more than four out of five (81%) describe their firm’s finances as very or quite healthy.

Paying tax bills on time is a long-standing issue for many SMEs with last year’s wage increases adding to the pressure on finances.

Companies appear to be focusing on expanding their businesses as well as raising funds from investors and borrowing money in order to pay bills on time, but some may be forced to cut jobs.

Firms which are struggling should consider spreading the cost into convenient monthly payments to help them pay their tax on time and improve cashflow.

Changing tax obligations have encouraged clients to think more strategically about their cashflow with many choosing proactively to fund tax bills in order to maintain stronger cash positions, preserve liquidity and stay resilient ahead of potential economic headwinds. Instalment solutions help clients avoid ever reaching a point where deadlines become an issue, reinforcing good financial planning and risk management.

Premium Credit’s Tax and VAT funding proposition, which allows companies and business owners to spread the cost of their VAT, corporation tax and self-assessment tax payments for up to a year, has seen the number of clients using its service more than double in the past two years.

Nearly three out of four (71%) SMEs say they would consider such a scheme regardless of whether they struggle to pay their tax bills or not.

But these results represent outcomes, not the underlying explanation. The real driver is what our firms are doing within their own markets: strengthening capability, developing new service offerings, and responding directly to the needs of clients navigating increasingly complex environments.

C-suite leaders are remapping operational plans and trading relationships. Increased activity in this area reinforces the expansion plans identified at the beginning of the year, but with greater emphasis on diversifying targeted destinations. Businesses are focusing expansion closer to home – both domestically and in neighbouring markets. At the same time, Greater China, Latin America and Australia/Asia Pacific are the top destinations planned for increased trade. Central and Eastern Europe also stands out as the only market attracting interest from all neighbouring and distant regions.