If you can’t pay your VAT on time or in full, you should contact HMRC’s Payment Support Service on 0300 200 3835 immediately to make them aware of the situation.
By contacting HMRC, you may be able to avoid late payment penalties, which will only make your financial situation worse, and be able to arrange a payment plan that gives you:
- More time to pay
- Allows you to pay your bill in instalments by direct debit.
What is a Time to Pay Agreement?
If your company can’t pay VAT, you should contact HMRC to ask for a ‘Time to Pay Arrangement’ (TTP).
HMRC provides a ‘Business Payment Support Service’ that businesses can use if they are struggling to make a payment.
SMEs that are experiencing cash flow problems but which have a good compliance record should be able to make a Time to Pay arrangement with HMRC to pay their VAT bill over a longer term and in instalments.
Why is the Business Unable to pay VAT?
Being unable or late to pay your VAT is a serious issue and HMRC will understandably want to know why this problem has occurred. One of the of the most important things HMRC will want to know is whether the business is genuinely unable to pay its VAT bill or if the company directors are simply unwilling to make the payment.
It is not uncommon for directors to have invested their working capital in growing the business rather than paying their tax liabilities, and in this case, it will be difficult to reach a Time to Pay arrangement.
What are the Criteria for an HMRC Time to Pay Arrangement for VAT?
When discussing your circumstances with HMRC, the Business Payments Unit will want to know:
- Why the company is unable to pay its VAT in full and on time
- Whether you filed your VAT return on time
- What you have done to try and raise the money to pay the debt
- How much you can pay immediately
- How long you think you will need to pay the rest
Depending on the reasons why the company can’t pay, what your payment history has been and how long you need to pay the bill, HMRC will assess your ability to make the future payments and decide whether to agree to a VAT payment plan.
Deciding how much you can Afford to pay in Instalments
It’s essential you are realistic about how much of your VAT bill you will be able to repay each month. If you are unable to keep to the arrangement then the payment plan could be cancelled and penalties could apply. It will also be much more difficult to arrange another VAT payment plan if you have already defaulted on one. However, you also need to offer to repay an amount HMRC considers to be reasonable enough or it may refuse your proposal.
Got questions? Email firstname.lastname@example.org or call 03330 166559. Our experts are waiting to help you out.
As the lockdown continues to rumble on, and with no clear indication of when it is likely to end, businesses should be considering getting their employees to take some of their holiday entitlement in order to avoid a different crisis when normal business resumes.
Picture the scene: lockdown is lifted, business picks up and you’ve got loads of back order as well as current work to get out the door. Then one of your key team members sticks in a holiday request, then another, then another. Suddenly you’re faced with the prospect of trying to operate above normal 100% capacity with 70% of your team, or you have to deny holiday requests. If neither of these scenarios are appealing then you need to consider having your employees take some holiday leave when they are furloughed.
It’s good employer practice to encourage employees to take their annual leave spread throughout the year, but it’s good business practice to ensure that most leave is taken at a time when it’s best for the business. Many businesses are seasonal, or at least operate cyclically, and leave should be given/taken accordingly. If you’re a holiday park operator busy in the summer, you’d obviously seek to avoid too many holidays in the summer. Equally, if you’re a retailer you’d probably want to avid a glut of holidays in December.
How does lockdown fit in?
Most private sectors businesses have been forced to close, or at least drastically reduce their operating capacity. It’s fair to say therefore that these businesses could be said to be in a quiet phase of the cycle, and that when lockdown is eased or lifted, they will then, very quickly enter into the busy phase of the cycle. Therefore, if you apply the principle above, you should be looking to have as many holidays taken now, when there is going to be little or no impact on the business.
It may be tempting to insist all leave is taken now, during lockdown/furlough, but this is a risky approach and could have a seriously detrimental effect on team morale. We are therefore encouraging our clients to take a collaborative approach with their teams and a good mix could be asking them (or compelling them to take some of their annual leave now) along with an undertaking from them not to ask for time off for a period of time after lockdown restrictions have been eased. Remember as an employer, there is no obligation on an employer to agree to holiday requests and it’s reasonable to refuse these where there are business needs to be met. If employees are unable to take all their holiday as a result, then they may be able to carry this over to the next holiday year.
Remember the notice periods
It’s important to remember that, if you wish to compel employees to take holiday leave at a set time that you must give them notice equivalent to twice the length of time of leave you are asking them to take. So, if you want them to take two weeks, you need to give four weeks’ notice. It’s very important that you consider the timing of this in relation to your anticipated re-opening. For example, if you anticipate needing all hands on deck within four weeks, then the maximum amount of holiday you can compel your staff to take is 1.33 weeks as you’ll need to give them 2.66 weeks’ notice.
Got questions? Email email@example.com or call 03330 166559. Our experts are waiting to help you out.
I’m a small business owner as well as an accountant. So I’ve seen the inside of many an SME. Here’s the single most important thing I’ve learned: As a leader of a business, especially a small business, your main role, almost your only role, is to ensure the positive cash flow of the business.
Now, more than ever, it is important to amass cash in your business. The businesses that will come out of lockdown and survive are the businesses that have built resilience into their model. A key part of being resilient is retaining a positive cash flow.
Remember that your clients and customers and supplier are in the same boat and will probably have their own eye on their own cash flow so you’ll likely encounter resistance in a lot of areas, but keep applying the principles and you’ll be fine.
You must retain positive cash flow. Everything else is incidental: Keep the staff happy and motivated? Try motivating your team after the end of the month when the payroll is due and the bank account is empty. You’ll motivate them right out of the door.
Everything flows from cash flow. And as a business leader, whatever you do in your business has to be done with one eye on the bank. From concept to cash.
Even when you aren’t focussed on it, the job in hand is predicated on getting money in the bank. The whole process is a bit like the “There Was An Old Lady…” song we all learned at school. Except for businesses its more like “We created a website, to build up an interest, to create a buzz, to generate clients, to get them to buy, to send them an invoice, to get them to pay”. So, now we’ve established how important the free flowing of funds IN to the business, and the retention of those same funds, here’s our top ten tips (in no particular order) for managing cash flow. There’s really no point in getting everything else right if you just go and cock up the cash flow.
Tip 1: Make it easy for customers to pay
Offer as many payment methods as possible: cash, cheque, bank transfer, credit cards. Oftentimes, you don’t even need to set up a merchant services account. Apps such as Stripe (stripe.com) and iZettle (izettle.com) can have you accepting card payments online in a matter of minutes. And there’s obviously PayPal as well.
Tip 2: Accelerate invoicing
The quicker you can get an invoice to Accounts Payable of the customer, the better. Many online accounting systems like Xero allow you to generate invoices on the fly and email them by PDF. The quicker the invoice reaches the client, the quicker you’ll get paid.
Tip 3: Invoice accurately
If there’s one thing that’s certain, if you make a mistake on an invoice, it will not be paid. Remember that your customer is also more than likely working within serious cash flow constraints and will be look for reasons to not to pay until they absolutely have to. If you make a mistake on your invoice you can guarantee that this will give them an excuse not to pay. Don’t give them that excuse: make sure your invoices are correct.
Tip 4: Offer early settlement discounts
If you have the margins, and if you can afford it, offer discounts for early settlement. But you need to make it worthwhile. 10% is about the minimum that’s likely to make any odds.
Tip 5: Take up credit references
While not exactly foolproof (see Northern Rock, RBS etc) credit checking can help avoid bad debts. There’s no point in adding to this month’s bottom line with a sales invoice that’s going to come straight off next month’s. Experian and Equifax are a good start but also look at Creditsafe. You can also DIY by asking potential customers to provide references from other suppliers and their banks.
Tip 6: Ask for partial (or total) up front payment
There’s no shame in asking for upfront payment. If you’re embarrassed to ask, then you need to reconsider your career. Remember, big business were once small, established businesses were once start-ups. They all appreciate the pain of early stage cash flow and might be quite happy to help you out a little. But be prepared for a little quid-pro-quo. Upfront payment might merit a discount or an improved delivery schedule.
One of our salon owning clients has maintained a positive cash flow during the lockdown by putting the after-lockdown appointment book online and asking her customers to pay a deposit of around 20% to secure a spot. The client did this after reading my article Get Ready For (Re)Opening Day and in the first week of using the system, collected over £2,000 in deposits. Note: If you’re going to do this, remember that this income is not Revenue, it’s a liability – a promise to provide services in the future so make sure you book this to the balance sheet rather than the profit and loss account.
Tip 7: Minimise fixed cost expenses
So far we’ve focussed on getting cash IN. But, nothing drains cash flow like fixed costs when there’s nowt coming in. Start ups should avoid costly rents and staff costs until there is a level guaranteed income. Need a place to work? hot desk. Need a meeting space? try hotel lobbies – it’s free and surprisingly professional. Use a virtual PA or call answering service like yourreceptiondesk.co.uk or virtualpa.co.uk until you can afford a real person to answer your ‘phone and make you coffee.
One of your largest fixed costs is likely to be Salaries. or Wages. You might have some or all of your team on furlough at the moment, but when the JRS well runs dry you might be forced to lay off some staff. This could well be the difference between surviving and business failure. If you are going to make redundancies, cut once and cut deep: it’s better to make the redundancies than have the threat hanging over your existing team members: a jittery workforce, in fear of their jobs, are not effective in the fight for business survival.
Reducing expenses also applies to the business owner personally as well as the business itself: if you can reduce your spending it will (a) reduce the amount of cash you need to flow from the business to your personal account, and (b) foster a “we’re all in it together” culture within the team. See the bonus tip below to see why this is so important.
Tip 8: Only pay bills when you have to
I’m not suggesting you take the mickey out of suppliers but if you’ve negotiated terms, use them. If you’re given thirty days, pay on the thirtieth day. But not a day later. When you have a surplus of cash it may be an idea to pay early as well. This will normally give you some goodwill with your customers and might allow you a little flexibility when the time comes when there is a bill due and there’s no cash available for it.
During the current crisis, many landlords and suppliers are being extremely lenient with their tenants and customers. You should try to take advantage of this by arranging rent holidays, payment deferrals or extended terms. Remember that the businesses you work with are also worried about their survival and great deals are to be had. You can leverage but also remember that these businesses are in the same boar as you. So, be fair.
Tip 9: Set up pay monthly / subscription arrangements
If the service you provide is seasonal and therefore likely to cause your cash flow to experience significant peaks and troughs, try to even these out by offering your customers the ability to spread their payments monthly. This will probably be as attractive to them as it is to you.
Tip 10: Make sure you monitor cash flow
I’ve saved the most important until last: Get yourself a good accounting system that will allow you to monitor and control your cash flow. The old adage “what you can measure you can manage” has never been truer than when it comes to cash flow. A good system will allow you to chase and collect overdue payments, schedule payments of your own bills and to predict your projected cash flow and assess what impact certain events – ie, the non- or late-payment of a customer invoice will have. When you have this information to hand, you take appropriate action.
Bonus Tip: Get everyone on the same page
Be open with your team. Cultivate an attitude of “we’re going to weather this downturn together.” Go ahead and show them the books (or at least an overview) so they can see that ugly chart of dwindling (or heaven forbid, negative) cashflow. Don’t be afraid to say “we all need to be 10% more efficient and 10% more productive (ie., make 10% more while spending 10% less), or else none of us will have a job in 6 months.” Just including them in the problem solving process is often enough to motivate them to give that extra effort during tough times.
So that’s it. Take these tips into your business, apply them appropriately and you can guarantee your cash flow will be as good as it can possibly be.
This is a re-run of an article I wrote for LinkedIn a couple of years ago. Given the current situation we find ourselves in, I thought it was worth dusting off. Kane is now 22 months and 48 kilos. He’s still sitting at my feet, and he still eats my trainers.
Well, do we? I’m not so sure. Last month we had an addition to the family. Kane is a 3 month old Golden Retriever and because he needs a lot of attention at the moment, I agreed to take my share of the load and work from home a couple of days each week. As I write this at my kitchen table, he’s trying his best to return my trainers to their component parts. Left unchecked, he’ll probably succeed.
It’s got me thinking: I’m happiest at home, so I’m happier on Thursday when I work from home than I am on Tuesday when I’m in the office. Stands to reason that if I’m happier then I’ll be more productive. 12% more productive according to a 2015 Warwick University study. So I get more done on Thursdays than Tuesdays. That’s definitely true. And then there’s the commute that you’d no longer have. I’m fortunate that I only live 15 minutes from the office, but that’s 30 unproductive minutes that I could be spending doing stuff – work stuff, or personal stuff, or even sleep stuff. The point is it’s a waste of time.
So, if I’m more productive when I work from home then so must all of my team be, right? I’d guess so but all my team have the option to WFH for at least part of the week (except for the admin/receptionist – I’ll come to that later.) They certainly enjoy the flexibility and I bet they get more done too. And if it’s better for me and my team, it stands to reason its better for you and your team.
But what about Jeremy Kyle and all the other distractions of the homeworker? If my experience is anything to go by, they’ll get bored of that pretty damn quickly. And are you saying that you’ve hired people that you don’t trust to do their work unless you’re constantly standing over them? Is this a Victorian cotton mill or a modern business? And you can be sure that there are as many distractions in the office as there are at home.
All of our client work is done in the cloud. Using tools and solutions like FreeAgent, G-suite, Zoom and Slack we can get shit done and communicate effectively from anywhere. Using VOIP technology and iPhones means we are no longer tethered to our desk by a phone cord either. (To be fair we haven’t had desk phones since we opened up eight years ago but that’s another story.)
I mentioned earlier that the only fully office-based team member is Nicole, the admin/receptionist. Chiefly, she’s required to sit at the front desk at a desktop Mac (not a MacBook) and answer a corded phone (not an iPhone) and when I think about this rationally, I really don’t know why. She could just as easily work off a MacBook and a soft-phone from anywhere she likes, but convention has it she should come into the office to deal with the mail and greet any visitors. Never mind that more than 95% of our mail is electronic and that this week, we’ve only had five visitors to the office – all of whom were scheduled – she MUST be in the office Monday to Friday, 9 to 5. This doesn’t make sense to me any more.
I suppose there’s the question of culture and values. How can a team get the culture and values of a business if they don’t all work together? But surely culture and values can come from a shared vision, not a shared office.
And if that doesn’t convince you, what about the filthy lucre? In the the three years I’ve been in our current office, I reckon the office has cost us £75,000 in rent, utilities and fit-out. Wouldn’t that have been been better for business if I’d given this to my team instead? Or even if I’d spent it all on booze and fags?
So, to return to my original question, do we really need an office? Do I need to pay top dollar to for out, rent and heat a space that my team probably would rather not work in, all because convention (and let’s be honest here, a healthy dose of ego) tells me I do? I don’t think so, I really don’t.