UK SMEs Turn to Flexible Tax Payments Amid Cash Flow Strain

By Milan Rojan

More than one in five UK small and medium-sized enterprises (SMEs) believe they could be forced to close within the next five years due to difficulties paying tax bills, highlighting growing financial pressures on businesses and increasing demand for flexible payment solutions.

Jennie Hill, Chief Commercial Officer, Specialist Finance at Premium Credit, said SMEs were facing mounting pressure from higher taxes and rising employment costs, making it more difficult to meet tax obligations on time. She added that flexible payment options could help businesses manage cash flow more effectively while reducing the risk of penalties.

New research by Premium Credit found that 22% of SME owners and managers fear tax liabilities could threaten the survival of their businesses. The study also revealed that 39% of respondents had missed up to four tax payment deadlines during the past three years, underlining ongoing cash flow challenges.

The findings suggest many businesses are seeking ways to better manage tax obligations. Around 71% of SMEs said they would consider using a service that allows them to spread tax payments for a small fee, while 73% were aware they could spread payments throughout the year through HMRC arrangements.

Steve Harris, Director and Co-Founder at Central Finance, warned that businesses struggling with tax arrears may resort to expensive short-term borrowing, increasing repayment costs and placing further pressure on their finances.

The research also pointed to challenges around tax compliance. More than half of respondents admitted they had submitted a VAT or Corporation Tax return late within the past three years, exposing businesses to penalties and additional costs. The findings came as the UK continued to expand digital tax reporting requirements, increasing the frequency of tax submissions for many taxpayers.

Businesses remain concerned about the financial consequences of missing deadlines, with 13% saying they were very worried about HMRC fines. At the same time, 30% expect they may need to use HMRC’s Time to Pay scheme within the next three years, a notable increase compared with the previous year’s survey.

Despite these concerns, 44% of respondents believed HMRC has become more supportive of businesses, while 31% felt the authority has adopted a stricter approach.