Accelerated VAT Payment Rules Hurting Small Firms, Warns ISME

by Robin Pilgrim, LawAndTax-News.com, London

09 June 2004

The Irish Small and Medium Enterprises Association (ISME) on Monday warned that newly introduced rules on accelerated VAT payments are damaging the competitiveness of the Republic's small firms, by imposing significant limitations on business working capital.

Under the old rules, Irish businesses were permitted to pay VAT on a cash receipts basis. However, the majority of traders now have to pay VAT to the Revenue within five weeks of an invoice being issued, regardless of when the invoice is paid.

This effectively means that Value Added Tax can become payable before any value has been received by the company in question.

ISME revealed that although this does not generally have an adverse effect on the working capital of multinationals and large exporting firms located in Ireland, small and medium-sized firms, which are already feeling the pinch due to increased production costs, are bearing the majority of the increasingly heavy burden.

"Cashflow is the lifeblood of any business and it makes no sense to require competitive businesses to allocate sizeable funds to unproductive activity," the Association announced, observing that:

"The only beneficiaries are the government and the lending banks, who need very little assistance in making money from SMEs."

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