This is one of those deadline weeks which are marked clearly in accountants’ calendars, because it is the week when for anyone whose VAT reporting is in calendar quarters, payment for the first three months of the year becomes due.
Usually this is largely non-negotiable, but because of the Covid-19 pandemic, business can now defer that payment until 31st March 2021.
The question is: should you do so, or should you make the payment now if you can afford to do so?
There will always be those who like the comfort of having settled their tax bills; we have also spoken to some business owners who feel a moral imperative to pay their tax if they can, on the basis that the government’s Covid-19 response, and all of those vital key workers we clap for every Thursday, are funded by that tax revenue.
That’s all well and good, but you will be helping nobody if you pay now and then end up with a cashflow crisis later in the year because the return to normality – whatever that will look like – is slower than we hoped. In the long-run, ensuring the survival of your business, and its ability to carry on paying taxes in subsequent years (as well as provide employment), is the most important thing.
Even if you have cash in your business now, think about how long you can survive if it takes months for trade to pick up. The costs of bringing staff out of furlough, restocking and implementing social distancing measures could all impact your cashflow in the second half of the year. That deferred tax payment could just make the difference.
Of course, if you do defer, you need to have a plan in place for how you will pay the rolled-up tax liability all in one go in March next year. For that reason, it’s worth considering all of the measures available, from the new Bounce Back loans, which are interest and payment free in the first year, to taking mortgage and loan repayment holidays, to build up a ‘fighting fund’ to help your business survive.
Even if you have the cash now, don’t automatically pay tax bills that fall due. Assuming you won’t need that cash to survive later in the year. But if you do defer, make sure you have a plan for how you will face that delayed bill next year.