The FPB is concerned that too few small firms are aware of the CAS, which allows them to pay VAT on actual payments, rather than unpaid invoices. This helps to protect their cash flow – particularly if payments owed to them are late. Currently only those with a turnover of less than £1.35 million can join the scheme. The FPB believes this level should to be raised to £2 million in order to allow more struggling businesses to be eligible.

"Many ideas are being put forward to help small businesses with their cash flow, but few can deliver instantaneous improvement," said the FPB's Chief Executive, Phil Orford. "Cash accounting for VAT payments is an established mechanism that delivers immediate liquidity benefits. Eligible businesses pay VAT to the revenue only when they have been paid. The improvement to cash flow could be as much as £10,000. For some business owners, this could be the difference between survival or not. The FPB recommends that eligible businesses implement this scheme without delay."

"At a time when accessing finance is becoming more difficult, and cash flow pressures are becoming more sustained, all beneficial options should be considered by small businesses," said the FPB's Chief Executive, Phil Orford. "Accessing readily available mechanisms to improve cash flow should be encouraged. Cash accounting for VAT payments is one such mechanism, and small businesses should utilise this option now if they are short of liquidity. Joining up is easy to do and easy to implement. The FPB recommends that business owners who are eligible implement this scheme without delay."

FPB member John Smout is a painter and decorator by trade. He founded Paintlyne in Portsmouth, Hampshire, in 1963. The company has grown steadily, and now employs 15 staff, but like any other business owner, Mr Smout is feeling the effects of the downturn.

"A lot of small firms are on the edge. Like anybody, at the moment I'm chasing every bit of work I can get. For a company of the size of mine, the CAS offers considerable relief – especially if I'm not being paid promptly. In what other walk of life would you have to pay for money you haven't received?" said Mr Smout. "As for the Conservative's VAT holiday, I think they're asking for trouble. If you can't pay him at the end of the six months, the VAT man will just put you out of business. Small businesses are the lifeblood of the UK's economy, but all too often simply looked on as being fodder."

A move to increase the level of eligibility would require agreement from the European Commission because the CAS is derived from a European Directive. In April 2007, following a request by the UK, the criteria for joining the scheme was more than doubled from firms with a turnover of £660,000 to the present level. The FPB believes that, because many more businesses are suffering because of the current economic climate, the case for a further extension is stronger than ever.

In particular, small businesses are struggling to cope with an increase in poor payment practices. In a recent survey carried out by the FPB, 88% of respondents revealed that their bigger customers are not paying them within contractually-agreed periods, with 72% believing this to have a ‘serious' or ‘very serious' impact on their businesses.

In addition, 56% of respondents consider the scale of late payment to have grown worse over the past year, and 78% predict that late payment will get worse still over the coming year.

As part of its Pre-Budget Report submissions, the FPB is pressuring the Government to push for a further extension to the qualifying criteria of the CAS, which can provide immediate relief from late payment and would make a real difference for many small businesses suffering cash flow problems, and with a large number of debtors.

"I thought the Conservatives' VAT holiday proposal was good for grabbing headlines, but I don't think it has any real merit at all. The problem is the temptation to forget about VAT and deal with other debts, for example, only for there to be no money to pay HMRC at the end of the six months," said the FPB's VAT Adviser, Andrew Needham. "However, extending the CAS would mean that many more small businesses would not have to pay customs until they are paid themselves. It would be a form of bad debt relief, with little or no cost to the Government."

The FPB is urging businesses struggling to pay their VAT bills to call its Campaigns Team on 01565 634 467. Alternatively, the FPB's member helpline is available on 0845 130 1722. For further information on the CAS, visit HM Revenue & Customs at www.hmrc.gov.uk/vat/vat-account-choose.htm.