Financial Planning

Chancellor urged to tackle late payment crisis

By the Federation of Small Businesses
Financial Planning
Published: 12 March 2018

Ahead of tomorrow’s Spring Statement, new research from the Federation of Small Businesses (FSB) reveals that Britain’s late payment crisis is worsening.

The vast majority (84%) of small firms report being paid late, with a third (33%) saying at least one in four payments they’re owed arrives later than agreed.

A similar proportion (37%) state that agreed payment terms have lengthened in the past two years, hampering cash flow. Only 4% say payment terms are improving.

FSB National Chairman Mike Cherry said: “Small firms will applaud healthy public finances off the back of responsible management. However, what they need to see day to day is large corporations taking a similarly responsible approach to paying suppliers. Small firms currently have billions withheld from them by large companies that pay late.

“Our late payment crisis causes the closure of an estimated 50,000 businesses a year, costing the economy £2.5 billion annually. The collapse of Carillion saw the dangers of poor payment practice writ large. The sorry episode has cost jobs and ruined lives.

“Improving the nation’s productivity forecasts starts by speaking out on late payments today. In doing so, the Chancellor will send a clear message to British boardrooms. The late payment crisis will only end when we see a fundamental cultural shift in the boardroom, with those at the top collectively addressing the issue, and directors held accountable for supply chain support.

“Value Added Tax (VAT) is the most time-consuming tax for small firms to manage. A small VAT-registered business spends more than a working week every year complying with VAT admin on average. Any new consultation on VAT should not take lowering the £85,000 registration threshold as its starting point. That would be expanding a bad tax rather than reforming it.

“There are issues with firms not wanting to cross the turnover threshold, but can you blame them when registering for VAT means taking on a massive admin burden? The solution lies in a root and branch review of the VAT regime, not in suddenly dragging more small firms into it.

“The Chancellor talked about tax breaks for small firms over the weekend, but we should remember that the take from business rates alone is set to rise by an inflation-beating 3.5 per cent to £25 billion over the coming financial year. Less than 5 per cent of that will be spent on small business rates relief, to help those least able to absorb the increase.

“Many small firms are still waiting for support from the £300 million ‘emergency’ business rates hardship fund launched last spring. The Treasury and DCLG need to ensure that funding isn’t lost once we reach April. The regressive rates regime is in urgent need of reform. We look forward to the Government delivering on the promise of more frequent revaluations.

“Plans to extend public sector IR35 rule changes to the private sector need to be developed with caution. Extending the changes too quickly, without taking the time to assess their impact on the public sector, could be disastrous for the 4.8 million-strong self-employed community. The public finances won’t stay strong for long if these strivers are frozen out by employers who are scared to take them on because of IR35 changes.

“Equally, any consultation on single use plastics needs to be business-led. Small firms share the Government’s aim of reducing the impact of plastics on the environment, but will need support to phase out their use.

“The Spring Statement marks an opportunity to reinforce commitment to promises already made. These include refunds for those hit by the unfair Staircase Tax and the abolition of Class II National Insurance Contributions.”