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HMRC to crack down on unpaid VAT

16/07/13

UK businesses currently owe roughly £2.5 billion in VAT to the public purse, with HM Revenue & Customs (HMRC) determined to reduce this figure over the coming years at it develops its use of distraint and other techniques.

The report - produced by independent finance provider Syscap - suggests that companies are struggling to pay their bills, or not able to access finance in order to meet their tax liabilities.

However, they also indicate that HMRC is attempting to slough off any perception of it as a soft touch and showing more willingness to chase down unpaid tax. The amount of unpaid VAT facing the organisation in 2012 was £2.7 billion.

In addition to making use of its property-seizure powers, HMRC more than doubled its spend on external debt collectors to almost £13 million.

Syscap chief executive officer Philip White pointed out that the tax collector is becoming "increasingly draconian" when it comes to seizing assets and even has the ability to shut down businesses altogether.

"To companies under financial pressure, accessing the necessary funds to pay a large tax bill, when they may not even have received payment from customers and clients yet, can be a huge challenge," he added.

Although in the past it was possible to make up any shortfall through borrowing from the bank, this is increasingly not a viable option as the financial services sector becomes more heavily regulated and remains cautious in the current economic climate.

Unincorporated businesses such as sole traders and large partnerships have to pay half of their estimated annual tax liability on their profits upfront in advance, based on their previous year's earnings, something that can prove problematic depending on their income sources.

This could prove especially difficult for boutique firms or those that are only starting up, potentially making things even more difficult for small to medium-sized enterprises in the UK.

HMRC recently invest £200 million in digital services in a bid to make it easier for individuals and organisations to take control of their tax affairs.

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