Tax arrears are ticking time bombs |
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| Finance | |
| Written by Catherine Murray | |
| Monday, 01 June 2009 | |
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Deferring tax under ‘time to pay’ could lead to a domino effect of corporate failures Over 60,000 companies have agreed 'time to pay' tax arrangements with HMRC since the Business Payment Support Service (BPSS) was launched late last year. This initiative has provided immense support to distressed businesses but, according to Steve Clancy, a partner at MCR Tax Arrears Solutions, this could be storing up disaster, as deferring payments to HMRC does not mean the debt has gone away. Clancy explains, "The BPSS provides a fast track service to support businesses that have been affected by the economic downturn. 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" It is estimated that the ‘time to pay’ arrangements already total more than £1 billion. According to a recent news release from HMRC, construction firms account for a quarter of those benefiting from these new arrangements, with many retailers and manufacturers also agreeing payment schedules they can afford. When the scheme was launched Financial Secretary to the Treasury Stephen Timms said, "The Government is determined to support businesses through these challenging economic times. The new dedicated Business Payment Support Service will ensure that businesses needing extra time to pay their tax bill can get a quick decision from HMRC. "By speaking directly to an HMRC adviser they should be able to agree an affordable payment timetable without incurring any extra charges, saving hard working businesses both time and money," he said. A potential problem with the initiative, however, is that many agreements are reached on the strength of a telephone discussion. An assessment has not been made by an independent specialist to demonstrate a business’s future viability and their ability to repay its debts. Often companies then end up with unrealistic short term agreements which serve little purpose and need to be renegotiated, says Clancy. Deferring the payment of tax can therefore simply mean the deferment of a problem. "Yes valuable time can be secured to put restructuring measures in place. However not all companies are taking advantage of this time to put their own houses in order and to focus attention on driving revenue streams," Clancy says. He explains that 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 60,000 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," says Clancy. "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 HRMC,” concludes Clancy. Comments (0)
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