better languages usually steers clear of political debate, but the Conservatives have recently trumpeted the idea of SMEs being able to defer payment of VAT. Good idea? We think not…

It is inevitable during times of economic downturn that politicians look for quick fix solutions, but we feel strongly that the ability to defer VAT payments wouldn’t help cash flow, whilst worsening cash flow for the exchequer at a stroke. Why is this? Most businesses are able to account for VAT using cash accounting, this means that VAT is only paid to the Revenue once it has been received. If you have received the money from customers, then it is physically sitting there when you need to pay it over. All deferring payment does is artificially boost your cash flow by deferring liability. At best this is a short term measure, which will give an artificial boost to small businesses, at worst this will tempt businesses in a poor cash flow position to get into a worse mess, remember the proposal is only deferral, the VAT will still have to be paid.

We actually think that the current VAT system works pretty well. If anyone wants to make a real difference for small businesses, they need to input real money, or make real improvements to the tax system, not just go for sound bytes which don’t make any real contribution.

This entry was posted on Monday, November 10th, 2008 at 9:52 am and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.