Don’t Miss Out: VAT Payment Extensions, An SME Guide (2013)
Foreword: Surcharges on late VAT payments can represent a significant burden on SMEs. In an organisation where short-term cash flow problems arise and turnover is relatively small, a surcharge of even a few thousand pounds can risk the stability and viability of the business. The good news is that there is an option open to businesses with genuine cash-flow problems looking to avoid VAT surcharges. The bad news is that few businesses currently know that this VAT Payment Extension scheme exists.
This document sets out the what and the how of VAT Payment Extensions. It also provides analysis and commentary on some original Chamber research into awareness of VAT extensions amongst member businesses, illustrated with selected case studies. Finally it offers recommendations for decision makers on how to improve awareness and up take of VAT Payment Extensions. It is our hope that this document proves useful to SMEs and member businesses across the Chamber network.
Contents: Introduction What is a VAT Payment Surcharge?
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What is a VAT Payment Extension?
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How can I get an extension?
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Chamber Research Methodology and Sample
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Results
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Analysis
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Case Study
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Recommendations
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Introduction: What is a VAT Payment Surcharge? VAT is a tax placed on most goods and services sold by VAT registered businesses in the UK. All VAT registered businesses are required to charge output VAT on all their taxable sales. They can also claim back most of the VAT charged on their inputs. Businesses are responsible for recording this information and calculating how much VAT they owe the HMRC. Payment schedules vary, but generally businesses have to pay the VAT they owe in lump sums every quarter or, occasionally, annually or monthly.
Where businesses miss more than one VAT Payment deadline within 12 months they may be charged a VAT Payment Surcharge. Click here or see the HMRC website for more information on VAT Payment Surcharges. Often where businesses have missed more than one VAT Payment deadline it is because they are experiencing cashflow issues. As a result this additional charge can compound their problems and seriously risk the stability of their business. That is why the HMRC offer a VAT Payment Extension scheme.
What is a VAT Payment Extension? Where businesses are aware in advance of their VAT payment deadline that they are going to be unable to make the payment in full they can apply for an extension.
If, after discussing their situation with a representative from the HMRC, they are offered an extension they will be given extra time to make the payment. Click here or go to the HMRC website for more information.
How can I get a VAT Payment Extension? To request a VAT Payment Surcharge Extension you need to call the HMRC Business Payment Support Service on 0300 200 3835. You will need to make sure that you call them BEFORE you miss your VAT payment deadline, as
soon as you become aware that you are likely to be unable to make your payment. Click here or search for the Business Payment Support Service on the HMRC website for more information. 2
Please note that you will need the following information to hand when contacting the helpline:
your tax reference number your name and/or the name of your business your/the business address including the postcode a contact telephone number details of the tax that you believe you will have difficulty paying details of any repayments you are currently receiving and/or may receive from HMRC in the future.
Remember: Whilst getting a VAT Payment Extension may help you avoid paying surcharges you will still have to pay any interest that builds up on the amount you owe. Whilst this is a highly useful and relatively easy to access initiative, many businesses are still finding themselves paying surcharges on late VAT payments. Research by the Greater Birmingham Chambers of Commerce indicates that this is largely down to a lack of awareness about the existence of this extension scheme.
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Chamber Research: Methodology and Sample The following data was gathered as part of the Greater Birmingham Chambers of Commerce Quarterly Economic Survey (Q3 2013). Data collection took place between August and September 2013. 340 member businesses responded to the VAT Payment Extensions section of the QES.
Results Businesses experiencing cash flow problems are able to request an extension on quarterly VAT payments from HMRC, potentially enabling them to avoid costly surcharges.
Before reading the above, were you aware of the existence of VAT payment extensions?
Has your business received a VAT surcharge for late payment in recent months?
10%
7%
47%
6%
Yes
Yes
No
No
Unsure
Prefer not to say
43%
87%
Amongst member businesses less than half, 47% had heard of VAT Payment Extensions. 43% had not heard of VAT Payment Extensions and 10% were unsure. By business size, large organisations (500+ employees) were most aware (26% no) and those with 1-19 employees the least (48% no).
The vast majority, 87% of businesses, had not received a VAT Surcharge for late payment in recent months. 7% preferred not to say and 6% had received a VAT Surcharge for late payment. 100% of those who answered ‘Yes’ were from SMEs. Nearly 80% of those were from organisations with fewer than 20 staff. 4
Analysis The results are very clear; awareness of VAT Payment Extensions is low. Less than half of all businesses are aware of VAT Payment Extensions. Awareness is particularly low amongst SMEs with 48% of companies employing 1-19 people declaring they are unaware of this initiative. Whilst only 6% of businesses reported having received a VAT Surcharge on a late payment in recent months, 100% of those were from organisations employing fewer than 200 members of staff. As one might expect, this suggests that the ability to access VAT Extensions is most important for SMEs. What is shocking about these results is the proportion of businesses who had been charged VAT Payment Surcharges who, until reading this question, were unaware of the existence of VAT Payment Extensions.
63% (12 out of 19) of those who had received a surcharge were unaware of the existence of extensions before completing the survey. This suggests a potential failing on the half of the HMRC to make businesses aware of the existence of VAT extensions. If a business is receiving a surcharge they will have, at the very least, received a written notice from the HMRC. Even if it is too late for them to avoid a surcharge on this occasion the HMRC should commit to ensuring that businesses are clearly signposted to the Business Payment Support Service and made aware of the existence of potential VAT Payment Extensions for future reference. There must be consistency in the way that HMRC Business Payment Support Service advisors engage with businesses and information, however brief, on the service and potential extensions included in all written correspondence concerning VAT payments.
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Case Studies: Quarterly Topical Poll: VAT payment extensions The following case study is from a Chamber member who responded to a separate request for case studies in our daily e-newsletter. At the request of the company, it has been anonymised. All names used are pseudonyms.
Case Study: An SME Specialist Consultancy John, the Managing Director of a small consultancy practice, was experiencing some short-term cash-flow problems in his business. His company had been overpaying their Corporation Tax and were due a large rebate. Unfortunately this rebate had not been paid by the date they had originally been told. As a result, this had thrown their cash-flow planning out of joint for the quarter and they did not have the readily available funds to pay their quarterly VAT payment on time.
They tried to find a solution and called the HMRC helpline to see if it would be possible to take some of the money they were owed off their up-coming VAT payment. The advisor in question reacted very badly to this request, suggesting that they were proposing was fraudulent and stating that the onus was on them to find the money and there was nothing they could do about the due date of their VAT payment. A few hours later, certain there must be a way to resolve the situation, they called back. On speaking to a new advisor they were informed about the possibility of having an extension on their VAT payment. They were offered a two week extension which gave them the time they needed to get the necessary funds together. Had John accepted the word of the first advisor he spoke to his company would have had no choice but to make the payment late. This suggests great inconsistency in the way different advisors are dealing with businesses struggling to pay their VAT on time and serious issues with communicating to businesses the existence of VAT Payment Extensions.
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Recommendations: Our recommendations are simple: The HMRC needs to do more to raise awareness of the existence of VAT Payment Extensions and what businesses need to do to benefit from them. This could take two forms: firstly awareness raising before VAT payments become an issue through standard media (online, events, targeted promotion) and secondly by highlighting the existence of VAT Payment Extensions in all correspondence concerning late payments. The HMRC needs to directly target SMEs and micro businesses in any awareness raising campaigns or outreach programmes concerning VAT Payment Extensions.
The HMRC needs to ensure all of their helpline staff are aware of the existence of VAT Payment Extensions and are offering them to businesses consistently.
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About the Chamber: The Greater Birmingham Chambers of Commerce are some of the UK’s oldest and largest Chambers. We have nearly 3,000 member companies that employ over 200,000 plus affiliate organisations representing 15,000 people. It offers extensive services to industry and commerce, having served the interests of business for three centuries, promoting trade locally, nationally and internationally. We have specialist programmes in place to help your business with everything from recruiting apprentices to business planning, training and developing your staff to accessing new markets and lobbying local and national Government on your behalf. If you are a Chamber member and would like advice and support on getting more out of your membership the Chamber is here to help you. If you would like to learn more about Chamber services or becoming a member please take a look at our website: www.birmingham-chamber.com or email us on info@birmingham-chamber.com . The Greater Birmingham Chambers of Commerce is a diverse group of forwardthinking organisations. It includes: Birmingham Chamber of Commerce, Burton & District Chamber, Chase Chamber, Lichfield & Tamworth Chamber, Solihull Chamber, Future Faces, The Institute of Asian Businesses and the British American Business Council.
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Henrietta Brealey Policy Advisor Greater Birmingham Chambers of Commerce 75 Harborne Road Edgbaston Birmingham B15 3DH T.: 0121 607 1786 E.: H.Brealey@Birmingham-Chamber.com
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