Essentially we’re paying someone else’s tax for the privilege of acting as unpaid tax collectors for HMRC
With reference to your article “The 30 Days War” (27 April, page 24), there’s no doubt that specialists are waiting considerably longer than 30 days for payment, despite the government’s efforts.
The Association for Consultancy and Engineering (ACE) has found that the average payment cycle for consulting engineers in the UK is 76 days, which is clearly causing suffering in what is already a challenging market.
One point that’s often not raised is the problem with the way VAT rules are applied. Currently, once turnover exceeds £1.35m companies are required to pay VAT on an accruals basis.
Therefore, when we invoice a client at the end of our VAT quarter we’re required to pay VAT on the invoice within 30 days of the end of our VAT quarter, regardless of whether the client has paid us.
This means we end up paying the government VAT on average, for 47 days worth of work. With VAT at 17.5% that equates to 2.25% of a company’s annual turnover, which has to be paid to the government before receiving funds. Essentially we’re paying someone else’s tax for the privilege of acting as unpaid tax collectors for HMRC.
This particularly frustrating VAT rule is imposed by Brussels. I therefore plan to raise this issue with Marianne Klingbeil, who is in charge of European Commission regulatory reform, at a British Chamber of Commerce roundtable on 15 May.
Steve Hale, managing director, Crofton Design