Time To Pay refusal rate hits new peak
New HMRC figures show a dramatic increase in the Time To Pay (TTP) refusal rate, alongside a drop in demand and ongoing concerns about the way the service operates.
The percentage of TTP requests refused during the first quarter of 2011 ws 9.3%, compared with 2009 and 2010 when the refusal rate was just 2.7% and 6% respectively.
The official figures for the first quarter of 2011 also reveal a decrease in demand driven mainly by the economic downturn. HMRC notes that there are regular peaks in demand associated with payment deadlines across all tax regimes, but that the underlying trend is a decrease in demand. Comparing the first quarter of each year since its inception, demand for the Business Payment Support Service (BPSS) in 2011 is currently at 40% of that observed during 2009 and 61% in 2010.
HMRC continues to play down the suggestion there’s been any tightening of criteria, despite arguments to the contrary from within the accountancy community in recent months. Earlier this year AccountingWEB.co.uk members and business groups provided evidence of this harder line approach.
More recently the HMRC Working Together e-group discussed practical restrictions on getting agreements arranged. Several group members suggested that HMRC resourcing has been a major hurdle, in particular with problems getting through to the right people.
Continued...
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Not the message on the ground
The published refusal rate, although higher, does not seem to agree to the message being given out over the phone. When discussing a case with HMRC we were effecively told there were no new time to pay arrangements being granted.
In addition anecdotal evidence suggests hardly any are being agreed.
Are we sure that the refusal rate and the agreed rates have not be transposed!
Comments from Baker Tilly's George Bull
In his weekly tax digest, George Bull offered the following analysis of whether HMRC ws taking a harder line on time to pay applications:
Frankly the statistics themselves do not tell us, nor is there any hint about HMRC practice in the narrative provided with the numbers.
Fewer time to pay agreements
In the first quarter of 2009, HMRC agreed 89,000 applications for time to pay: in the first quarter of 2010 the figure was 53,600; in 2011 the figure was 33,020. So the number of arrangements has declined to approximately 37% of the 2009 figure.
The amount of tax postponed has fallen from £425m to £202m and then £130m in the first quarters of 1009, 2010 and 2011 respectively.
More refusals
In the first quarter of 2009, HMRC refused 2,440 applications, representing tax of £39m: in the same period in 2010 refusals dropped slightly, to 2,360 but the amount of tax fell more significantly, to £27m; however, in 2011 the number of refusals in the first quarter has risen to 3,390, the highest for all three years but the actual amount of tax for which time to pay was denied has fallen to only £13m.
Is HMRC really playing hardball?
HMRC insists that the criteria for obtaining time to pay remain unchanged but that does not mean they are not being applied with greater rigour, or perhaps with the rigour that was originally intended but overlooked in the rush to get the system up and running: remember that BPSS only began in December 2008. Anecdotal evidence is that applications are being looked at more closely by HMRC and are more likely to be refused but is that really so surprising? When BPSS was introduced the problem was that businesses with tax to pay faced cash-flow difficulties in the economic downturn. The reduction in the amounts of tax being deferred is proportionally greater than the reduction in the number of applications: the number of applications refused has increased by 39% since the first quarter of 2009 but the amount of tax involved has fallen by 67%.
BPSS was originally intended to be a short-term measure and it only continues is a result of conscious decisions to extend it. Since the start of the downturn many businesses that were going to fail have done so and so are not around to apply for time to pay. Similarly, profitability has broadly declined but the businesses that remain profitable have much less need of time to pay, while the businesses that are in trouble can largely be expected to have passed from the stage of steeply declining profits to low profits and low profits mean low tax bills.
Glass half full or half empty?
One of the most significant statistics is the 70% drop in the amount of tax for which HMRC is granting time to pay.
The optimistic view is that this may mean that fewer businesses need time to pay because they are sufficiently stable to be able to meet their tax bills without needing time to pay.
The pessimistic view is that businesses which have not made the profits on which the tax would be payable do not have tax to pay and so do not need time to pay.
Make sure any Time to Pay is affordable
Make sure that any Time to pay deal is affordable. Make all requests in writing. Also if you think your client can afford to pay off the debt in 6 months ask for 8 months. Things can and do go awry. If you think that the debt is not completely affordable and could be paid off over a couple of years or more then a company Voluntary Arrangement or CVA might be the answer.
As a company voluntary arrangement is a formal insolvency process the "case" is then taken out of the hands of the enforcement department and is referred to the Voluntary Arrangement Service or VAS. Effectively as 100% collection is now unlikely, VAS has to judge whether a CVA is a fit fair and feasible alternative to winding up. Note the last line of the aims of the VAS as published on the HMRC website. They WANT to help rescue viable companies!