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Crackdown on Late Business Payments

Tue, 15 Sep 2026 15:50:41 GMT

UK Businesses to Face Largest Crackdown on Late Business Payments in 25 Years

A bill is currently making its way through parliament that aims to deliver the toughest crackdown on late business payments in a generation. If passed, the proposed “Small Business Protections” bill will impose a 60-day cap on business-to-business invoice payment times for large firms and a 30-day cap for public authorities.

The bill builds on the Late Payment of Commercial Debts Act of 1998. But to give it added teeth, all commercial contracts will be required to provide for statutory interest at 8% above the Bank of England base rate on all late payments. Payments are considered “late” if they are not made within 30 days after the customer receives the invoice or the goods/services.

“Late payments close 38 businesses every single day because they are not paid on time,” notes the government’s press release. “That’s the equivalent of 266 a week, and well over a thousand in any given month. For business owners, the impact is immediate and personal – forcing them to spend hours chasing invoices instead of running their businesses and putting jobs and livelihoods at risk.”

The government wants to change this. Through the proposed legislation, it hopes to turn the UK into the "toughest late payment regime in the G7". To that end, the Small Business commissioner will obtain “major new powers to investigate poor payment practices, adjudicate disputes, and fine the worst offenders.” Those fines could apparently rise into the tens of millions.

Late payments may not be a new problem, but they are certainly a growing one. Recent research by Sage points to the scale of the challenge, with late payments estimated to cost the UK economy some £11 billion each year. Chronic late payments clearly act as a drag on the ability of businesses to invest, hire and grow, the UK tech company warns.

Nearly half of all SME invoices (49%) are overdue, with businesses waiting an average of 27 days to receive payment after issuing an invoice. The delays appear to be having a domino effect across the economy, Sage cautions, with SMEs themselves now taking, on average, 37 days to pay supplier invoices, up from 32 days in Q1 2025.

Other data seem to confirm this trend. According to the Quarterly Business Health Report from R3 , the UK’s trade body for restructuring, turnaround and insolvency professionals, late payment pressures rose in Q1 2026, with the total number of overdue invoices growing to 17.48 million, up 3% on Q1 2025. The number of businesses carrying overdue invoices also grew to 1.57 million.

As we noted in our previous article, Britain’s small business sector continues to show signs of resilience as profitability in the sector outperforms the broader economy. This is despite the cash-flow pressures resulting from late payment. If the government’s Small Business Protections bill passes parliament, those pressures should begin to subside.

Why Legitimate Small Businesses Are Falling Into HMRC's Audit Trap (and How to Avoid It)

Tue, 15 Sep 2026 15:45:08 GMT

New Title

Here’s a statistic that may surprise you: small businesses accounted for over 60% of the UK’s £59.6 billion shortfall from unpaid taxes last year, mostly due to simple errors and lack of care. This makes them the largest single contributor to the annual tax gap across all customer groups.

What’s more, the shortfall is growing bigger each year. In 2024-25, the tax gap – the difference between the amount of tax expected to be paid each year and the amount collected – was 6.4%, almost 7% more than it was in 2023-24.

It’s not just the tax gap that is growing; so, too, is the share of the gap attributed to small businesses. According to HMRC, that share has increased over the past 5 years, from 44% of the overall tax gap in 2018 to 2019, to 62% in 2024 to 2025.

In the Sights of HMRC

It is perhaps no surprise, therefore, that small businesses are finding themselves in the sights of HMRC, at a time when the government is looking to beef up its tax revenues. The amount collected from tax investigations into small businesses and individuals over the past year alone has increased by 23%, according to SME Magazine.

To help close the UK’s tax gap and recover billions in lost revenues, HMRC has unveiled plans to recruit 5,000 additional tax inspectors by 2029-30. Tax inspectors are also better equipped to spot tax anomalies thanks to recent advances in data analytics, information sharing, and AI, which allow them to build a more complete picture of our tax profiles.

HMRC often compares businesses within the same sector to identify those with performance metrics that seem out of whack with industry averages. Even a small mismatch in those metrics can trigger an enquiry.

So, while there’s no surefire way for SMEs to avoid a tax enquiry, understanding what can attract HMRC’s attention puts you in a much stronger position. Below are four relatively simple tips to help keep your business compliant and thereby reduce the risk of an investigation [if all else fails and you end up falling into the audit trap, bonus tip #5 will help minimise the fallout].

1. Be punctual with your submissions. Whether it’s a Corporation Tax return, PAYE submission or VAT return, filing late on a regular basis can send the wrong kind of message to the tax authorities. While the occasional slip-up is understable, repeated missed deadlines could raise suspicions about the accuracy of your tax records.

On a positive note, this is a relatively easy trigger to avoid. Keeping track of key dates, having your financial records in order and preparing your returns well ahead of time can help you stay compliant and avoid an HMRC audit. It is also a guaranteed way of reducing stress.

2. Be wary of raising red flags . As already mentioned, even small mismatches in your metrics can attract unwanted attention. A sudden rise or sharp drop in revenues or profits doesn’t necessarily mean you’ve done anything wrong, but it can attract the intetest of HMRC.

That said, there are plenty of legitimate reasons for sharp variations in income or profits, from landing a major new contract to experiencing a subdued trading period. Seasonal businesses are particularly prone to such pronounced fluctutations.

If that is the case for your business, tip #3 is particularly relevant for you.

3. Keep your records in order. Keeping close track of financial data helps to ensure that accounts, payroll and VAT line up across all filings. That entails, among things, keeping records of expenses, director loans, and dividends to justify entries.

This is particularly important if your business handles a lot of cash, which is likely to draw greater scrutiny from HMRC. In which case, good record keeping (issuing receipts, maintaining detailed sales records, regularly reconciling cash balances...) becomes even more vital.

4. Avoid Filing Unusual Expense Claims . A common – and perfectly legitimate – way for businesses to reduce their tax bills is to file expense claims. However, if those claims seem out of kilter with your income or the industry average, HMRC may want to know why.

5. If HMRC does come calling, seek professional advice as soon as possible. It is vital that you consult an advisor before responding to HMRC...

Statutory Audit Thresholds

Tue, 15 Sep 2026 15:34:25 GMT

To Audit Or Not to Audit?

That is the question facing over 130,000 UK SMEs.

One of the Rishi Sunak government’s last acts in office was to increase company size thresholds, which, among other things, determine whether a company requires a statutory audit (medium-size and large companies do while small and micro businesses don’t). The consequences of that action are only now being felt, and for an estimated 132,000 firms those consequences are big.

The main goal of the initiative was to reduce SMEs’ admin burden and costs, so that they (in the words of the government) “can focus on their growth and delivering for their customers.” SMEs, the government said, are the “lifeblood of local communities" and a key driver of the UK economy. They were also hit particularly hard by the economic fallout of the COVID-19 lockdowns.

New Limits

Prior to the threshold changes, to qualify as a small company (and therefore not require a statutory audit), companies needed to tick at least two of the following three boxes.

They needed to have:

An annual turnover of not more than £10.2 million.
A balance sheet total of not more than £5.1 million.
A workforce of not more than 50 employees.

After the rule changes, the annual turnover and balance sheet thresholds were increased by roughly 50% to £15 million and £7.5 million, respectively. The workforce threshold remained the same, at 50 employees. As shown in the graph below, these alterations formed part of wholesale changes to turnover and balance sheet thresholds for all company categories.

The timing of the impact of these regulatory changes varies, depending on each company’s year end. For those with a December year end, the first affected period began on 1st January, 2026 and will end on 31st December, 2026. By contrast, for companies with a March year end, the first period commenced on 1 April, 2026 and ends on 31 March, 2027.

A Prickly Dilemma

As a result of these changes, an estimated 132,000 firms have been downsized from medium to small, meaning they are no longer subject to a statutory audit. As a result, they will be able to redirect the funds and resources usually allocated to an audit, to benefit other parts of their business.

But they may want to pause a moment before doing that.

Instead of focusing exclusively on the cost benefits, the companies should consider the potential impact of removing the audit process on their operations. After all, audits, whether statutory or voluntary, serve vital functions. Most importantly, they provide transparency for investors, lenders and other key stakeholders. Removing the audit process risks undermining stakeholder confidence.

There are moments in a firm’s life cycle when stakeholder confidence is indispensable. If your firm is considering a future sale or exit, or is looking to increase borrowing or improve financing conditions, an audit provides an added layer of trust and confidence that may make the difference between a successful outcome and an unsuccessful one.

There are other compelling reasons for retaining the audit process, such as good governance, fraud deterrence and improved detection of accounting errors. In addition, if your company is going through a period of particularly fast growth, conducting a voluntary audit will help to ensure that the internal control environment is properly structured to allow it to deal with that growth.

In short, audits can provide oft-overlooked benefits for firms that may be sorely missed further down the road. This is why the Sunak government’s decision to raise company size thresholds, while broadly beneficial, presents a prickly dilemma for many of the businesses affected: to audit or not to audit?

Now, that is the question.

Making Tax Digital For Income Tax

Tue, 15 Sep 2026 15:26:48 GMT

What Businesses Need to Know About Making Tax Digital for Income Tax

After years of preparation and delays, the government’s Making Tax Digital for Income Tax (MTD for IT) finally came into effect in April 2026. As expected (and intended), it is transforming the way sole traders and landlords report to HM Revenue and Customs (HMRC). What’s more, as Accountancy Age notes, “UK accountants are at the heart of this shift, helping clients stay compliant and get ahead of the curve”.

So, What Is Making Tax Digital for Income Tax?

As the name suggests, Making Tax Digital is a government initiative by HMRC aimed at modernising the tax system by supplanting traditional paper records with mandatory digital record-keeping and regular electronic updates. The first phase of the initiative, Making Tax Digital for VAT, was launched in 2019 and affected an estimated 2.3 million businesses.

The prospective benefits of MTD for IT, according to the government, include:

Time saving . Digital submissions via software are generally quicker than traditional paper filings, though getting set up can take time. An HMRC survey of business owners found that MTD for VAT generated a time saving of between 26 hours and 40 hours per business per year, which equates to a financial saving to the overall economy of between £603 million and £915 million.
More tax confidence . Sending quarterly updates gives businesses a clearer view of the health of their business and helps them to estimate their annual tax bill. This, in turn, helps them to set aside necessary funds, detect accounting errors and correct them before they become serious problems.
Improved business operations . Using bank-fed software and updating records more regularly help to ensure more accurate and more timely reporting than 'back of an envelope’ or spreadsheet methods. This is a win-win for both HMRC and taxpayers: with realtime data, the government should have a better idea of what funds to expect in the near future while sole traders and landlords should be able to plan their finances more effectively.

Who Will Be Affected?

The first phase of MTD for IT affects sole traders and landlords with annual revenues of £50,000 and above. The first quarterly update under Making Tax Digital for Income Tax came into effect in the second quarter of 2026 and the deadline is due on 7 August, 2026.

From then on, quarterly digital updates are required on top of the traditional annual tax declaration. It is important to note that a quarterly update is not equivalent to a tax return given that it requires far less data. As such, everyone affected still needs to complete their annual filing.

The annual revenue threshold is set to drop to £30,000 in the second phase, scheduled for next year, and then to £20,000 in the third phase, scheduled for 2028. This will significantly widen the number of businesses and landlords having to report to HMRC on a quarterly basis, with an estimated 2.9 million individuals expected to be affected by MTD for IT.

Making Tax Digital is one of the biggest changes to self assessment in a generation, and it will no doubt take time for many to adjust. Understandably, many sole traders and landlords have concerns and misgivings about the new processes. Here are three of the most common:

Administrative over-burden . Instead of having to file one tax return a year, self-employed people will now have to submit at least five. While that might sound like a lot of additional (paperless) paperwork, the admin burden should grow lighter as the automated processes kick in and as the prospective benefits outlined above take effect.
Additional costs . Many sole traders are also concerned about the additional financial burden, particularly on the software front. As with all digital transformation initiatives, the less computer literate you are, the more difficult the change. That said, there is a combination of free and paid MTD-compatible software options available, designed for different types of businesses, with free software products on offer to sole traders with a single income source.
More penalties for non-compliance . Another common fear is that the introduction of more deadlines will translate into more fines for non-compliance. To try to allay this fear, the government has introduced a points-based penalty system for MTD, rather than immediate fines for missed submissions. Missing a deadline earns a point and penalties only apply once a certain threshold is breached.

Public resistance to the changes remains high, however. In mid-July, over half (55%) of the small businesses affected by the first phase of MTD for IT were still not prepared for the first submission deadline on August 7, according to research by Lloyds Bank. Using HMRC estimates, Lloyds believes that could represent close to half a million sole traders, landlords and small businesses.

If you are one of those people, it probably makes sense to seek guidance on MTD for IT and complete your submission as soon as possible. Remember, missing the first deadline does not carry a penalty fine.

If it’s any consolation, it’s not just small businesses and landlords that are behind schedule. According to a survey cited by Accountancy Age, around 80% of UK accountants see MTD as both their biggest challenge and opportunity this year. One in three say they’re not fully ready.

That is not the case here at Moore Northern Home Counties. If you are a sole trader, private landlord or small business owner, we can assess whether MTD for IT applies to you. If that is the case, we can recommend suitable software, set up the required bookkeeping processes and ensure that quarterly submissions are compliant and filed on time.