More than half of small and medium-sized businesses in the UK are finding it difficult to meet their tax obligations, according to new research, as companies continue to face higher employment and operating costs.
Research commissioned by business finance provider Premium Credit found that 52% of SMEs are currently experiencing difficulties paying their tax bills. The findings come as the financial impact of recent tax and wage increases continues to feed through to businesses.
Corporation Tax is proving to be the biggest challenge, with 22% of businesses saying they are struggling to meet those payments. A further 12% reported difficulties paying VAT, while 20% said they were having problems with both forms of tax.
Businesses look for ways to manage cashflow
With tax demands putting additional pressure on cashflow, many businesses are looking at ways to generate additional income or secure funding.
Around 32% of SMEs said they would take on additional work to help cover their tax liabilities. Meanwhile, 23% said they would look to existing investors for additional funds, while 21% would consider borrowing to meet their obligations.
Businesses have several options when they need a cash flow injection, including business credit cards, overdrafts, unsecured business loans, asset finance or specific loans to pay VAT bills.
For some businesses, however, the pressure could have a direct impact on employment. Around 13% said they may have to reduce their workforce as a result of financial pressures.
The research suggests that recent increases in the cost of employing staff are contributing to the strain. Last year’s rise in Employers’ National Insurance contributions, together with increases in the minimum wage, has added to the overall cost base for many SMEs.
Only 20% of businesses said they had been unaffected by changes to taxation.
Among those experiencing an impact, 36% said higher taxes had reduced their profits, while 34% said increased costs had resulted in lower recruitment. Another 19% said the changes had made trading more difficult and contributed to falling revenues.
Tax payment difficulties are not new
The latest figures also highlight that difficulties meeting tax liabilities pre-date the most recent increases.
Over the past three years, 53% of SMEs said they had struggled to pay a tax bill. Corporation Tax and VAT were again among the most commonly cited difficulties, with 24% saying they had experienced problems with both.
The amounts involved can also be substantial. Some 37% of businesses that had struggled with tax bills said the amount owed was more than £50,000, while 12% reported difficulties with bills exceeding £100,000.
It is important to know that the HMRC can offer repayment plans for those businesses that need help spreading their repayments over time, whilst often incurring added interest of under 7%, which is less than most business loans.
Despite these pressures, the majority of businesses surveyed remain relatively positive about their overall financial position. More than four in five SMEs — 81% — described their finances as either very healthy or quite healthy.
Jennie Hill, Chief Commercial Officer at Premium Credit, said tax payment difficulties had been a persistent issue for SMEs, with rising employment costs adding to existing financial pressures.
She said businesses were responding by seeking additional work, investment and borrowing, although some could ultimately face the prospect of reducing staff numbers.
James Cashmore, Commercial Director and co-founder of Reality Finance, said changes to tax obligations had encouraged businesses to take a more proactive approach to cashflow management.
He said some companies were choosing to fund tax liabilities in advance in order to maintain liquidity and strengthen their financial position.
The findings underline the importance of cashflow planning for smaller businesses, particularly as they balance tax deadlines against rising operating costs and the need to invest in growth.
