More businesses seek alternative finance as HMRC seeks to wind up 3,000 companies over tax debts

29 June 2015

31st of July tax payment deadline looming for small businesses

HMRC last year applied to shut down 3,000 businesses to meet unpaid tax bills, highlighting the importance to businesses of being able to access alternative finance for urgent commitments such as tax payments, says Funding Options, the online business finance supermarket.

Funding Options adds that in 2014*, the tax authority was successful in gaining court orders to wind up 1,887 businesses over their tax debts, a 4% rise from 1,816 in 2013. After the business is wound-up, HMRC liquidates its assets in order to cover the unpaid tax bills.

Funding Options, which specialises matching SMEs to the most appropriate finance provider for their needs, says that the figures highlight the potential consequences if businesses’ immediate cash flow position makes them unable to secure alternative finance to cover their tax bills.

The upcoming 31st of July deadline, on which small businesses paying self-assessment tax must make a major payment on account, is a major crunch point in the cash flow calendar for SMEs.

Funding Options points out that SMEs’ financial planning is made more difficult by quirks in the system which mean that tax can be due before the revenue it is based on is actually received. VAT bills fall due according to the dates that invoices are issued, regardless of whether they have been paid or not. Additionally, unincorporated businesses have to pay 50% of their tax bill for the following year in advance in July.

SMEs’ cash flow may also be hit by the unexpected late payment of a key invoice, or by a major increase in costs such as an insurance premium increase.

With just over a month remaining until the July 31 deadline, Funding Options says that businesses must act now to find the funding they need to meet their tax obligations. It says that many businesses are not aware of the alternatives to conventional overdrafts or traditional loans from their high street bank, and need to compare all the potential options, including asset finance, invoice finance and even crowdfunding, in order to find the best deal for them.

Conrad Ford, CEO of Funding Options, says:

“For small businesses looking nervously at the upcoming July 31 tax payment deadline, the need to get funding in place to cover the payments is now pressing.”
“Funding to cover tax bills is an area we are seeing increasing demand for. It’s not something banks are keen to lend for, leaving businesses having to find other funding options.”
“There is a wide range of choices out there for small businesses seeking funding – invoice finance, asset finance, crowdfunding and peer-to-peer lending can all provide the liquidity businesses need. Unfortunately, small businesses leaders often don’t know which sort of finance is the best fit for a particular need, or who is out there to provide it.”
“At Funding Options, we’re able to scour our extensive panel of more than 50 lenders across the spectrum to put together a funding package for a business, no matter how complex, urgent or challenging its situation.”
“Although HMRC does attempt to resolve issues with businesses, it can only wait so long if arrears are building. SMEs need to plan ahead to identify ways that they can manage their cash flow more effectively, such as alternative finance to spread the cost and mitigate the risk of major financial shocks such as bad debts or sudden cost hikes.”

* Year end: December 31 2014