One in five SMEs struggle to pay tax bills

Nearly 500,000 SMEs have missed tax payment deadlines in the past three years with 19% admitting to missing five or more in the past 12 months.

Complex tax rules and cash flow issues are hitting SMEs across the board, leading to late payment of tax bills, and a general low level of compliance, reflected in HMRC’s tax gap figures which showed that small business were the worst at compliance, representing nearly 60% of unpaid tax.

With 5.4 million SMEs in the UK, 9% of them have missed tax payment deadlines for corporation tax, VAT and other taxes in the past three years, showed a survey by Premium Credit, a provider of finance for businesses.

The share of the tax gap attributed to small businesses has increased over the last five years, from 48% before the pandemic in 2019-20 to 60% in 2023-24, as they fail to pay a staggering £28.08bn, revealed latest HMRC Tax Gap figures released last month.

SMEs are also struggling to actually make the payments, with many looking to use HMRC time to pay arrangements as they cannot pay their taxes on time. Around 12% said they would consider using HMRC’s Time to Pay (TTP) scheme, which enables eligible business to pay corporation tax arrears usually within three to six months, in the next three years.

Missing tax payment deadlines can be expensive with penalties and fines ranging from £100 for being a day late with a corporation tax payment to as much as 15% of the amount of VAT not paid on time. Fines for paying VAT late start after payment is 15 days overdue.

Meantime, 9% of SME owners and managers said they had worked for a company which closed down because it could not pay its tax bills, Premium Credit found.

SME owners and managers were split over whether HMRC was getting tougher on tax arrears and debts – around 20% said it was taking a more aggressive position on chasing tax debt, but 23% disagreed with this, saying HMRC had ‘become more supportive’. However, the majority saw no change in HMRC’s position.

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One in five SMEs struggle to pay tax bills

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