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Businesses face insolvency over tax debts

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29th Jul 2010
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Businesses that don't manage their tax debts properly may face insolvency and be unable to take advantage of HMRC's Time to Pay scheme, warn experts.

As the 31 July deadline for paying national insurance contributions looms large, HMRC’s policy on allowing extended time to pay under the Business Payment Support Service (BPSS) may push taxpayers towards less conventional sources of funds to pay the tax due.

According to figures published in the Financial Times recently, the number of companies taking up the opportunity to defer tax payments has doubled in the last nine months, with more than £5.2bn of tax now deferred under the scheme.

Since its launch in November 2008, the Business Payment Support Service has reached more than 300,000 ‘time to pay’ agreements with more than 200,000 businesses, collectively employing more than 1.4m people.

“Applications are normally made under the BPSS when conventional sources of finance have been exhausted, so if HMRC refuses extended credit, businesses are faced with some awkward choices; if the tax is paid late HMRC will charge interest and, if arrears are not cleared within a month, surcharges. More significantly for many, especially subcontractors in the construction industry who need to keep a clean tax record to retain gross payment status, a missed payment can have further ramifications,” said George Bull, tax partner at Baker Tilly.

If mainstream banks aren’t happy to lend, taxpayers may then find themselves turning to secondary lenders whose interest and charges are likely to be higher than those charged by the main banks, as well as carrying the risk of loss of personal assets, even the borrowers’ homes.

“For some, unfortunately, HMRC’s refusal of credit may even be the tipping point into insolvency, causing the business to cease trading altogether for lack of funds. This is not necessarily HMRC’s fault: if a business is fundamentally unsound it is not HMRC’s job to prop it up by extending credit without the hope of recovery,” added Bull.

“We haven’t changed our policy since the Business Payment Support Service started,” an HMRC spokesperson told AccountingWEB. “The Time to Pay scheme is still available for all taxes, not just self assessment, corporation tax or VAT, and each tax has its own deadlines for payment.

“There’s no limit on the number of times someone can apply for it, but if someone is coming to us for a second or third time, we may ask for further evidence of what the business has done to pay off its other debts, because presumably we’re not going to be the only creditor.

“We’ll help businesses where we can, but where it’s obvious the business is just using HMRC as a bank and is not taking any other steps at all to pay off its other debts, we have to refuse.

“The whole point of BPSS is that it’s a two way arrangement. We will help where we can if the business is viable, but we expect the business to try and refinance or use other sources where possible”.

For those unable to come to a Time to Pay agreement, there are other options, explains Bull: “Businesses facing these stark choices do not automatically have to face higher lending fees or go out of business: they can consult a business recovery specialist who can advise them about all the options for either preserving their business or managing the cessation in the least harmful way”.

 

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Wild Billy Hickok
By Wild Billy
30th Jul 2010 18:53

Every time this comes up...

... we get rent-a-quotes from so-called experts spouting nonsense.

It would also help if we could have non-sensationalist headlines. "HMRC’s ‘Time to Pay’ rules could push some businesses into insolvency" isn't even fit for The Daily Mail or The Sun. How about "HMRC’s ‘Time to Pay’ rules help hundreds of thousands of businesses stave off insolvency (but those who have no prospect of paying still go insolvent like they would have anyway)".

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By Gina Dyer
02nd Aug 2010 10:07

Point taken

I thought about what you said and you're absolutely right. It wasn't a very balanced intro, particularly since HMRC confirmed that nothing has changed about the Time to Pay scheme. I've therefore amended it slightly so that hopefully it's less 'sensationalist'. We all get things wrong sometimes and I'm continually learning, so thanks for your input.

When I contacted HMRC about the scheme, they were helpful in confirming the details. In case anyone's in doubt about it, here is what they were able to confirm:

There has been no change in HMRC’s policy or criteria for “Time to Pay (TTP) which has long been feature of HMRC’s approach to tax debt collection. The very successful Business Payment Support Service (BPSS) was introduced by HMRC in November 2008 to provide simple and fast access to HMRC’s decision making process around TTP for less complex and lower risk cases  and it  will continue for as long as it is needed.The service is available for all HMRC taxes, including VAT, Corporation Tax, Income Tax and NICs (PAYE).HMRC payment advisers are available seven days a week to take calls. The number is 0845 302 1435. Lines are open 8am to 8pm during the week and 8am to 4pm at weekends.HMRC’s website provides information on when and how to pay, what to do if people have problems paying HMRC, what happens if they don’t pay and where to get advice on dealing with debt.If circumstances change and the business becomes unable to make the payments covered by the agreement, as well as keeping up to date with any new liabilities, then it is important that HMRC is satisfied that the business continues to be viable as part of considering amending and/or extending any agreement. In such circumstances HMRC will need to ask more detailed questions so that they can be as sure as possible that the business will be able to meet any new arrangement.Where a business is requesting a repeat agreement, more detailed questions will be asked to ensure the business is viable and capable of sustaining a realistic arrangement. HMRC cannot agree time to pay where it does not believe the business would be able to pay tax due if given more time. 
 

 

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