How Professional firms can solve the VAT problem and avoid late payments
16 March 2020
Whilst many Professional service practices had previously eschewed the idea of financing recurring payments such as VAT – seeing it as an option that only struggling practices would consider, such attitudes towards finance have changed, with companies now looking for ways to increase their cash flow and manage their money more efficiently.
This shift has come about not only due to pressures with regards to VAT payments, but also the increasing difficulties businesses have with juggling cash flow.
But it’s not just a financial issue. If a Professional practice is forced to deal with a VAT dispute, it can be a time-consuming process, which can then detract from its day-to-day running.
Avoiding VAT late payment
Research shows that UK businesses owed £3 billion to HMRC in overdue VAT payments in 2017/18. Whilst penalties can be avoided by providing early notification of payment difficulties by the deadline, companies that are late making VAT payments could incur a fine of up to 15% on the outstanding value of the tax due, a considerable sum for smaller practices to fund from cash flow.
By thinking about cash management ahead of time, you can be well prepared for these recurring payments, and ultimately improve your entire business proposition.
It’s good practice and good behaviour to be on the front foot in taking charge of your cash flow. Enhanced management of peaks and troughs in activity can provide a sound foundation for running the rest of your practice.
It simply doesn’t make good sense to spend valuable time worrying about whether the practice can pay the VAT on time, when it can achieve a fast and fuss-free option through financing it and allow you to focus on running a successful practice.
Short-term loan to finance your VAT bill
Essential obligations such as VAT, should not have to compete with a businesses’ plans for growth, or have any significant impact on cash flow. Careful planning can ensure investment to expand and demands from HMRC can be managed side-by-side, albeit, there are ways of supporting this, particularly via finance.
Whilst all practices aim to keep enough aside to cover the cost of VAT bills, this isn’t always possible, and when working capital volumes don’t permit, practices need to look at alternative sources to fulfil these costs. Business loans are one such way of funding this expense and are becoming increasingly popular amongst the professions.
White Oak UK have provided over £120m in VAT loans to Professional Service firms in the last 3 years.
Professional practices like yours, have increasingly embraced the flexibility of VAT loans to cover the cost of this recurring expenditure and to proactively ensure they will not be hit by a late payment fine.
You can choose whether payments are made directly to HMRC on your behalf, or to your account, but ultimately a short term VAT loan frees up capital for other business requirements, by spreading the cost over 3 months and offering a quarterly facility to meet these ongoing costs.