204,000 Tax Arrears Ticking Time Bombs

Failing to meet time to pay arrangements will lead to a raft of corporate failures

The summer is now well and truly over and the economic realities may be coming home to over 200,000 UK businesses.  Since November 2008 HM Revenue & Customs has agreed some 204,000 so-called ‘time-to-pay’ arrangements following the launch of the Business Payment Support Service (BPSS) late last year. This scheme was specifically designed for small businesses.

Under the terms of those agreements some £2.7 billion has already been deferred as of June this year and £1.1 billion of that now needs to be repaid and of that figure, according to the Treasury, 33,000 repeat arrangements account for £440m.

However on top of this figure needs to be added the overall debt owed to the HMRC by business which according to The National Audit Office, has risen by £2.7 billion to £27.7 billion in 2008-9.  HMRC has already increased the provision for bad debt to £11.2 billion as of March 31st 2009 – 40% of the total owed.

This initiative provided immense support to distressed businesses at the beginning of the year but, according to Steve Clancy, Partner at MCR Tax Arrears Solutions, this could have stored up disaster for certain businesses, as deferring payments to HMRC does not mean the debt has gone away.

Steve stated: “The HMRC has provided a number of fast track services to support businesses that have been affected by the economic downturn. But these figures are alarming and there can be no doubt that the total now owed to HMRC could be over £30 billion. Businesses who need more time to settle their tax liabilities can agree terms with HMRC or use specialists such as ourselves where longer repayment periods are required or where matters are more complex,”

“But the growing numbers of cash strapped companies that have put off paying taxes are at risk of insolvency because of this.  Increases could start as soon as the end of the year as, despite the scheme still being available, we have seen HMRC tighten up on the procedure considerably since August 2009,” he added.

“After all, if a company cannot pay its current debt, it certainly can’t pay this debt plus the arrears to HMRC,” he continued. “It is crucial that early engagement takes place with all parties involved, including lenders, so that potential solutions can be reviewed as early as possible.

“Business owners also need to be aware that even with the introduction of deferred tax payments, all tax liabilities will still need to be paid albeit over longer and more manageable timescale in addition to meeting all current and ongoing obligations as and when they fall due. 

“Our concern is that with so many firms already taking advantage of this scheme it could mean that as the economy continues to struggle, cashflow remains tight, but that tax liability will not have gone away.  With many companies not taking professional advice they face that liability coming back to haunt them in six months or so.  If that is the case I am convinced we may experience a surge of corporate failures and a resultant collapse in revenues for HMRC,” concluded Steve.

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