Reply to: Delaying VAT payments

[David71]

They could do everyone a solid favour and knock out corporation tax for a year

(if anything of course, it'll need increasing to pay for all these schemes the government is forking out for)

Don't be shy about claiming what's on offer - contractors are sure as hell going to be paying for it

Damn right.... I've just had my (10k) Welsh Government micro-business grant approved

[PerfectStorm]

They could do everyone a solid favour and knock out corporation tax for a year

(if anything of course, it'll need increasing to pay for all these schemes the government is forking out for)

Don't be shy about claiming what's on offer - contractors are sure as hell going to be paying for it

[ladymuck]

Deferral of VAT payments due to coronavirus (COVID-19) - GOV.UK



They have it literally in the title of the gov UK advice that deferral of VAT is meant for cash flow purposes. The government expects businesses to potentially need to spend this VAT money in the interim which means the government is accepting the risk that a % of businesses will default on this in a years time. Not saying that will be my business I am in a good position + am still in contract.

I just feel like I am really disconnected with everyone here so I will just drop out of this thread.

I will say though anyone reading this thread who feels like their business is struggling or might be struggling soon, do not feel ashamed or get bullied by people here into not taking help that the government is offering you. Whether that is vat deferrals, furlough scheme, etc. It's all there for a reason. To keep businesses afloat and if the choice is insolvency or using one of these programs well then you can make your own choice but definitely don't let people bully you into feeling guilty for using one of these programs.

Don't take it personally. VAT is an odd tax to have eased up on demanding payment for, especially as it's only for one quarter and the repayment mechanism isn't clear. It doesn't feel like its been well thought out.

You are right - each business should assess their own position and decide for themselves which schemes to use that will help them the most.

[jayn200]

VAT should never be part of your reserves? It comes in and goes straight back out again. Why would you ever consider doing anything else with it? All your expenses, whatever they may be, should come out of the net portion of your invoice. To do anything else is a dangerous and slippery slope.

Deferral of VAT payments due to coronavirus (COVID-19) - GOV.UK

Deferral of VAT payments due to coronavirus (COVID-19)

Temporary changes to the VAT payments due between 20 March 2020 and 30 June 2020 to help businesses manage their cash flow.

They have it literally in the title of the gov UK advice that deferral of VAT is meant for cash flow purposes. The government expects businesses to potentially need to spend this VAT money in the interim which means the government is accepting the risk that a % of businesses will default on this in a years time. Not saying that will be my business I am in a good position + am still in contract.

I just feel like I am really disconnected with everyone here so I will just drop out of this thread.

I will say though anyone reading this thread who feels like their business is struggling or might be struggling soon, do not feel ashamed or get bullied by people here into not taking help that the government is offering you. Whether that is vat deferrals, furlough scheme, etc. It's all there for a reason. To keep businesses afloat and if the choice is insolvency or using one of these programs well then you can make your own choice but definitely don't let people bully you into feeling guilty for using one of these programs.

[ladymuck]

Deferring it does mean another quarter sat in the Aldermore pot for income. So there is that, at least.

The financially savvy thing, therefore, is to defer and pay the lump sum on the last day.

Yes, if you're not using it (as some seem to be suggesting) to pay the operating costs of your company.

[PerfectStorm]

Deferring it does mean another quarter sat in the Aldermore pot for income. So there is that, at least.

The financially savvy thing, therefore, is to defer and pay the lump sum on the last day.

[KinooOrKinog]

VAT should never be part of your reserves? It comes in and goes straight back out again. Why would you ever consider doing anything else with it? All your expenses, whatever they may be, should come out of the net portion of your invoice. To do anything else is a dangerous and slippery slope.

Absolutely. Because what's going to happen if you defer it, spend it, then after the year you still can't pay it? I think I'd need to be in absolute dire straits with no other options before I'd borrow from money due to the taxman.

[ladymuck]

VAT should never be part of your reserves? It comes in and goes straight back out again. Why would you ever consider doing anything else with it? All your expenses, whatever they may be, should come out of the net portion of your invoice. To do anything else is a dangerous and slippery slope.

[jayn200]

When I hire subcontractors I don't wait until the last possible day to pay them, and my clients typically pay me within the payment term not right at the end.

It's all well and good bandying terms "maximise cashflow" but how does it actually help your business unless you are cash-poor and use it as a float? If you want to take a dividend before an invoice is paid I guess but that suggests YourCo is operating in a risky fashion.

Why is it risky? There are lots of reasons why you would have minimal cash in your company. What if someone has a 2 director company with their spouse and invoices under 100k a year. They would likely pay out their earnings. What if someone is just starting out as a contractor? What if someone has wiped out any cash reserves they had because they couldnt get a contract due to ir35 reform+coronavirus? I think you have a hard time imagining anyone being in a situation different than you.

I could argue that keeping reserves in a company when it is more tax advantageous to take them out is carrying unnecessary risk.

It is 1 year to defer. If you are 100% confident there isn't a single scenario where you might need to use that cash in the short term and where it might save you from a late payment charge, interest on a loan, etc. then sure you don't need to defer. There still is no advantage to not deferring.

[elsergiovolador]

It's about risk. The government are going to want that VAT at some point - defer what you like, but spend the money at your peril. The contract business shouldn't be as cashflow dependent as others - you have no suppliers, you have no staff, you have few if any fixed overheads.

That if you are using your company solely for contracting. If you do other things as well then my not be that simple.

[d000hg]

Would you advise paying other creditors a year before payment is due if there is no financial incentive to do so?

When I hire subcontractors I don't wait until the last possible day to pay them, and my clients typically pay me within the payment term not right at the end.

It's all well and good bandying terms "maximise cashflow" but how does it actually help your business unless you are cash-poor and use it as a float? If you want to take a dividend before an invoice is paid I guess but that suggests YourCo is operating in a risky fashion.

[simes]

I don't understand the logic here.

Real businesses will defer anything and everything they can that doesn't come with a penalty. That's just part of maximizing cashflow.

You want to run a real business or do you want to pay your taxes early like an employee does?

For my part, I do not want to stick my head above the parapet for any past, present or future HMRC 'consideration'.

[ladymuck]

VAT is a passthrough, it never was my money and never will be. On all invoice payments I immediately transfer the VAT element to another account so it's kept separate. The portion of VAT I can reclaim generally covers my PAYE/NIC liabilities leaving me with just CT to put something aside for.

Other than earning a pitiful level of interest with it sitting in my bank account, I see absolutely no benefit in not paying it when due.

[Old Greg]

Deferring VAT is really odd. In effect, you have collected tax money on behalf of the state. Which is different from money YourCo has made, from which tax is owning.

The only argument I can see for this is where other funds (wage subsidies etc. are guaranteed by the state but where there is a lag in receiving them.

Otherwise, the VAT man will be round in a few months like this (NSFW if anyone is actually at work):

[jayn200]

No, because not paying creditors is mostly one of a purely civil matter. If I run out of money before I can pay them, it's mostly a case of tough tulip and there's very little they can do.

The same is not true for VAT, and I'm curious as to why you'd conflate them both.

I am not gonna spend the time to look up the specifics but I am sure there is action your creditors can take that could make you insolvent.

Sure it's much easier for HMRC to do it and the penalities are probably higher but still same logic applies to both.

You're probably confusing fraud with a genuine inability to pay your tax bill.

Regardless, I reiterate that every real company that is able to defer any and all types of payments (including tax) will absolutely do it.