Syscap, an independent finance provider in the IT sector, said it had seen a doubling in the number of applications for HMRC’s Time to Pay VAT scheme that were being rejected. The scheme enables viable businesses to defer paying their tax bills for a period at difficult times for their cashflow.

This has occurred despite the government’s insistence that firms are being given extra help as the fragile state of the British economy affects their cashflow and banks continure to be reluctant to lend.

HMRC rejected just over 11% of applications for the scheme during the first quarter of this year

Data obtained by Syscap using a Freedom of Information Act request shows that HMRC rejected just over 11% of applications for the scheme during the first quarter of this year. The figure for the same period of 2009 was just 5%.

Philip White, chief executive of Syscap, said it was too early in the recovery for HMRC to begin withdrawing support for struggling businesses, particularly small and medium enterprises

“SMEs are still finding it incredibly hard to borrow money from their bank to pay HMRC VAT so news that the HMRC refusal rate has shot up is worrying,” said Mr White.

“GDP growth of 0.2% in the first quarter of the year] shows the economy is weak, not strong, and that more needs to be done to help SMEs, not less.”

A major problem for businesses is that VAT bills are often calculated at the moment a customer is invoiced but those bills are often not settled for several months.

Currently, only 14% of companies file their returns online but on April Fool’s Day it becomes compulsory. From 1 April 2010, businesses with an annual turnover of £100,000 or more and all newly VAT registered businesses, must submit their VAT Returns online and pay VAT electronically. This applies to VAT returns for VAT return periods starting on or after 1 April.

Existing smaller businesses are only off the hook until next year. The government announced before Christmas that it intends to make all businesses e-file their VAT returns from 2011 - one year earlier than expected.

“As everybody knows there have been problems with HMRC’s online processes in the past. With online filing of VAT returns becoming compulsory there is going to be a massive demand and one of the biggest problems is to make sure that everyone knows about it,” said Anita Monteith, Technical Manager from the ICAEW Tax Faculty.

Six top tips for businesses from the ICAEW:

1. You need to register with HMRC for VAT online filing, similar to the self assessment process. Do this now
2. Use your activation pin code as soon as it arrives. It will expire 30 days after it was issued
3. Those businesses which must e-file, must also pay their VAT electronically. They will not be allowed to pay by posting a cheque
4. Keep a paper or electronic copy of your e-filed VAT return. It will be accessible on the HMRC website for only 15 months before it disappears and you may need to refer to it later
5. Print a copy of the electronic confirmation
6. If you have any questions or need advice, speak to a chartered accountant

For more information please visit www.icaew.com

The survey, by Sage, also revealed that just 4% of small companies would go to their banks for advice, highlighting how far banks have fallen in the estimation of small business owners due to the financial crisis and government bailouts.

Advice from management consultants was valued by 9% of businesses (down from 22% in 2008), while solicitors were called upon by 2% of SMEs (a drop from 18%).

The survey also revealed that over 60% of accounting practices expect to grow their business over the next three years - although three out of four accountants believe winning new clients will be critical to driving growth at their practice.

“In these difficult times, businesses need information from objective, reliable and trusted parties,” said Jayne Archbold, managing director of Sage’s Accountants’ Division.

“The fact that accountants have emerged as the most trusted advisor underlines the value they bring to UK firms.”

The Institute of Financial Accountants (IFA) is the most well-renowned financial management professional for SMEs. It’s currently doing everything it can to help small firms, most of which are experiencing some level of reduction in turnover and cash flow.

“We are living in difficult and uncertain times and there is clearly a need for SMEs to work with their advisers, including accountants, to maximise cashflow management,” says IFA Chief Executive, David Woodgate.

Top tips on managing cash flow
Cashflow is critical to business survival - ensure you’re managing your company effectively with the following pointers.

Know your customer - Who are you trading with? Is it a limited company, a partnership or a sole trader? Check credit agency reports and references and talk to their existing suppliers.

Getting paid - Non-payment is, of course, a serious threat to your cashflow. Formally agree payment terms in advance and confirm in writing. Devise a strategy for dealing with customers who demand longer to pay.

Invoicing - This is the vital first step for a healthy cashflow. Send your invoice immediately after supplying goods or services. Make sure disputed invoices are investigated and resolved straight away. Ensure sales invoices are fully compliant with HMRC guidelines and VAT requirements.

Treating suppliers fairly - It’s good business practice to pay suppliers on time and demonstrates Corporate Social Responsibility. Failing to pay on time could damage a supplier’s business or cause it to fail.

Credit Insurance - What is the risk of your most important customer’s business failing? You can protect against non-payment or insolvency with credit insurance. Good credit insurers can often provide detailed information on prospective customers and access to cheaper business financing.

Finance facilities - Managing your cashflow and ensuring the funds are there when needed means having longer payment terms from your suppliers than you give your customers. Otherwise you will need finance facilities such as factoring, invoice discounting, a bank overdraft or shortterm finance.

Chasing payments - Follow up nonpayments quickly with a letter, email and telephone call if the amount is large or you are concerned about the customer’s solvency. Check that they have the invoice, that it is accurate and states how the payment should be made.

Running low on cash - Obviously, if you run out of cash you can’t pay your suppliers, wages or overheads, and your business will fail. Keep an updated cashflow forecast, so you always know you have enough money to meet your commitments.

Taking legal action - When all else fails and a payment owed to you becomes a ‘bad debt’, you can take legal action. You can use a solicitor or a debt collection agency (although this is a more expensive route). You should first issue a statutory demand to be followed up with a bankruptcy, or winding up order if the debt is £750 or more. If they still don’t pay they may become insolvent in which case you are less likely to get your money.

If your customer goes bust - The debtor’s assets are divided amongst the creditors. Depending on the decision of the court, there could be an Individual Voluntary Arrangement where payment is made over time through a licensed insolvency practitioner. In a Company Voluntary Arrangement, where the directors retain control, the company arranges to pay the debt through a legally binding agreement.

For the best chances of success, prudent and sound management practices such as these are essential and will yield the best source of funds. Collaboration and seeking advice from experienced entrepreneurs will bring new opportunities by sharing risks and rewards. However you decide to fund your business, make sure you shop around and understand the risks involved as well as the rewards.

For more information please visit www.ifa.org.uk/home

The Business Payment Support Service has helped more than 160,000 businesses but recovery chiefs firms fear the scheme could be axed after the expected May general election

“I think to bring down the guillotine after an election would be a grave mistake because the system has worked really very well to help clients who want to pay, but cannot, to get more time to pay. If the right was suddenly halted after an election that would be desperately bad news,” said George Bull, head of tax at Baker Tilly.

The latest figures revealed that just under a quarter of a million time to pay arrangements, deferring tax payments of £4.3bn have been agreed.

However, tax policymakers have shot down any suggestion the scheme will be pulled abruptly and commented to the media.

“The ‘time to pay’ scheme has been hugely beneficial for businesses facing difficulties and will continue to run as long as necessary,” said a Treasury spokesman

“Any suggestion that it will end suddenly and businesses forced to repay is incorrect and runs counter to what the scheme was set up to achieve.”

The Paying Taxes 2010 report showed that the number of economies reforming their tax systems to make it easier to pay had jumped by 25% over last year to 45.

The top reformer of the year was Timor-Leste, which introduced new tax law, streamlined the business tax regime and simplified tax administration. With 10 economies reforming Eastern Europe and Central Asia had the largest number of reforms for the third year in a row.

Corporate income tax rates were reduced in 20 economies, while 18 simplified the process of paying taxes.

“The global recession has meant falling tax revenues and difficult tax policy choices. The challenge is ensuring sufficient public revenues for the future while incentivising investment and economic growth,” said Susan Symons, partner at PwC.

The new 50% tax increase for those earning more than £150,000 will come into law on April 5th. This rise can be countered by family companies in a move that would allow family members to limit their tax liability.

Mary Monfries, head of UK private business at PricewaterhouseCoopers, said she has had a couple of clients “seriously thinking” about how to plan their finances over the next few years.

“I have had a couple [of clients] seriously thinking ‘What do I need funding-wise over the coming few years? If I take it out before April it will cost me less than if I did it afterwards,” she commented.

The Business Rate Supplements Act allows country councils and unitary district councils the power to tax businesses to support projects that are aimed at economic development.

“Councils now have the power to demand a Business Rate supplement on top of the bills businesses are already paying, such as corporation tax, VAT, National Insurance and the ever rising business rate bill,” said Julie Calder, chair of the Business Centre Association (BCA).

The new tax is to be levied on business premises with a rateable value of more than £50,000 and the amount charged is capped at 2p per £1 of rateable value.

The watchdogs’ can issue a ‘skilled person reports’ to investigate concerns over a bank’s treatment of its customers, its handling of customer funds or its capital adequacy.

Large accountancy firms have reported an increase of up to 5 times for the requests to conduct skilled person reports this year.

KPMG’s research has revealed that UK companies could be violating anti-bribery and corruption rules by doing business in countries `where it is not possible to do business without being involved in bribery and corruption’.

The survey found that only one in three firms stopped operating in a country because of the bribery and corruption risks.

“With the recession companies are having to fight harder than ever to win new contracts, and as a result there could be an increased pressure on those in the front line to over-ride anti-bribery and corruption laws,” said Alex Plavsic, of KPMG’s fraud investigations.