A new ‘get tough’ approach towards small firms seeking to defer tax payments could trigger a raft of business failures, an insolvency expert has claimed.
Official figures show that last HM Revenue & Customs (HMRC) rejected 5.8 per cent of requests from firms under its Time to Pay arrangement – more than doubled those turned down in 2009.
HMRC maintains that the service remains available for companies who are unable to pay their tax in full and on time, and that its criteria have not changed.
But Nigel Morrison, managing partner at Grant Thornton in the South West and one of the region’s foremost insolvency experts, warns that the figures are “tangible evidence that things are getting harder” for businesses.
He believes that HMRC’s tougher stance could lead to more firms going out of business across the region as the Government looks for new ways to raise finance to meet its commitment to reducing the budget deficit.
“We have seen evidence ourselves of applications being rejected – and in some cases rejected on a second application – where the first arrangement had been honoured in full,” Mr Morrison said.
“A tougher approach to Time to Pay requests has long been seen as one of the potential triggers for another raft of failures, along with increased interest rates. Therefore these latest figures are tangible evidence that things are getting harder for businesses, and that the likelihood of more failures has increased.”
He said this tougher approach had been expected, as when the Time to Pay scheme was launched, it was regarded as comparatively easy for businesses to get an agreement.
“But with more experience and presumably more resource, HMRC is now better able to properly assess these applications,” said Mr Morrison. “Of course political pressures to generate cash needed to meet the Government’s deficit reduction target will also be partially behind this move – £6 billion is a lot of money.”
Businesses need to be aware that a request to defer paying tax under Time to Pay should always be seen as a last resort.
“The message to companies must be that if they make an application then it must be on good grounds, and that they should not assume that the application will be automatically granted. As always the key is for companies to take appropriate advice as soon as they see a problem looming.”
Time to Pay agreements are part of the Business Payment Support Service which was launched in 2008 to help businesses with short-term cash flow problems.
Around 400,000 Time to Pay arrangements, worth £6.83bn, have been granted across the UK, the majority for a deferral period of up to three months.
