CCR2 Wave of debt
‘March 2021 could see more firms go under than the peak’
September 21 marks the first of six key dates businesses need to prepare for over the next 12 months with March 2021’s VAT deadline potentially becoming make or break for many firms
Mark Neath Director, Old Mill
While lockdown measures may have eased, their impact – plus those social distancing measures still in place – will continue to effect firms across the UK for some time. So businesses need to start planning
now for the impact on cash reserves and here are six key dates that businesses should be planning for over the next 12 months warning that we could see a number of insolvencies in March 2021 when VAT becomes due.
21 September 2020 For many businesses, the actual lockdown itself will not be the worst period for cashflow, instead it will be in the next few weeks. As the working capital cycle begins, there will be certain commitments, and the reserves you would normally rely on have already been depleted. If we assume that most businesses started getting back to some sort of ‘normal’ back in June-July, the peak effect of the working capital rebuild is probably going to hit next month, and so, the last week of September is a key date that businesses should be planning for now.
1 October 2020 and 1 January 2021 As most UK companies have December or March year-ends, 1 October this year and 1 January next year are key dates as they are when Corporation Tax payments are due. The crisis had not kicked in back in
December and was only just taking hold in March, so profits were probably higher then, and the tax bill most likely larger. Since then, the lockdown may have depleted the cash generated in your last financial year meaning it is no longer there to pay the tax.
30 If there is one thing that I have seen push
As the working capital cycle begins, there will be certain commitments, and the reserves you would normally rely on have already been depleted
For December year-ends, who have just
gone through the September working capital peak, cash could be particularly tight. As these dates are either three or six months
away, there is time to plan and manage cash if possible, which may involve agreeing a Time To Pay arrangement with HMRC to spread it over a number of months.
7 November 2020 For businesses with a March, June, September, December VAT stagger, which is the most common, 7 November is the due date for the VAT on the September quarter. The September quarter is likely to be the
first quarter with a significant liability from returning to normal trading. Bearing in mind that this payment is going to be following hot on the heels of the September working capital peak and potentially the October Corporation Tax payment, the VAT payment will need to be planned for. Whilst it may be possible to spread the
payment with a Time To Pay arrangement with HMRC, or short-term borrowing, these tactics are potentially dangerous to enter into.
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firms into insolvency more than any other, it is getting behind on their VAT. This is because paying off last quarter’s VAT using this quarter’s cashflow is using up the cash needed when the VAT on those sales comes due. If necessary, transfer the VAT element of your customer receipts into a separate account so it is there when you need it.
31 January 2021 The end of January is the payment date for income tax. And while this is a personal lia- bility, not a company one, for many owner- managers, all income comes from the busi- ness, so there is usually a knock-on effect. Since the government made it possible to
defer the 31 July 2020 payment on account, the amount that will be due on 31 January 2021 will potentially be that much higher. In an ideal world, we would all put our 31 July 2020 payment into a separate bank account so we have it ready, but if you have reduced your drawings to protect the com- pany, that may not have been possible so you may need to draw money from the company to pay the tax, causing more issues with cashflow. While you could potentially agree a Time
To Pay arrangement with HMRC, that is spreading not reducing. The January 2021 payment will be based
on your income to 5 April 2020, which was pre-crisis and may well be higher than your income for the tax year 5 April 2021. It may, therefore, be possible to reduce the payment on account that needs to be made on 31 January alongside the 2019-2020 final payment. Also, get your tax return
September 2020
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