VAT system putting strain on small businesses

THE VAT system needs to be changed to ease the burden on small businesses and free up their cash flow, business lobby group ISME said yesterday.

ISME chief executive Mark Fielding said the VAT collection system was a drain on working capital and compounded cashflow problems.

Under VAT rules, businesses can only opt to pay VAT on a cash receipts basis if their annual turnover is less than €635,000. Traders who exceed this threshold must pay VAT on an accruals basis, which forces them to pay the VAT element of an invoice even if they have not yet received payment from their customers.