FPB Calls for New VAT Relief Scheme

The Forum of Private Business (FPB) is putting forward an alternative to the Conservative Party’s proposal to give struggling small firms a six-month VAT ‘holiday’, which could backfire if debts spiral out of control. The FPB believes that more businesses in the UK should be eligible to join the Cash Accounting Scheme (CAS) and defer paying VAT until they are paid themselves.

The FPB is concerned that too few small firms are aware of the CAS, which allows them to pay VAT on actual payments, rather than unpaid invoices. This helps to protect their cash flow – particularly if payments owed to them are late. Currently only those with a turnover of less than £1.35 million can join the scheme. The FPB believes this level should to be raised to £2 million in order to allow more struggling businesses to be eligible.

“Many ideas are being put forward to help small businesses with their cash flow, but few can deliver instantaneous improvement,” said the FPB’s Chief Executive, Phil Orford. “Cash accounting for VAT payments is an established mechanism that delivers immediate liquidity benefits. Eligible businesses pay VAT to the revenue only when they have been paid. The improvement to cash flow could be as much as £10,000. For some business owners, this could be the difference between survival or not. The FPB recommends that eligible businesses implement this scheme without delay.”

According to a statement from FPB, small businesses in particular are struggling to cope with an increase in poor payment practices. In a recent survey carried out by the FPB, 88 per cent of respondents revealed that their bigger customers are not paying them within contractually-agreed periods, with 72 per cent believing this to have a ‘serious’ or ‘very serious’ impact on their businesses. In addition, 56 per cent of respondents consider the scale of late payment to have grown worse over the past year, and 78 per cent predict that late payment will get worse still over the coming year.