Taxman grants fewer time to pay agreements

All good things must come to an end.

The latest stats from the taxman show its lauded tax deferral scheme for businesses is tailing off.

While this was inevitable, questions remain about which businesses still need their tax deferred – and are they rec­eiving the support they need.

HM Revenue and Customs recently revealed statistics on Time to Pay agreements. The taxman has doubled its rejection rate of agreements to 5.2% from January to September 2010, compared to 2.6% for the same period in 2009. This meant there were just 114,600 Time to Pay arrangements from January to September 2010, compared with 196,200 for the same period in 2009.

HMRC received 40% fewer requests for this period compared to 2009, so if fewer businesses have applied for Time to Pay, why has the taxman taken a harder line on those that have applied?

One explanation for the harder line is that it is facing a large number of repeat requests for tax deferrals.

The taxman has explained that in circumstances where organisations are coming back to them time and time again, it will ask more detailed questions as to why they are making repeated requests. It believes businesses making numerous requests will have to work harder to convince them it is a viable company, and that tax deferral is the right option for them. 

R3 president Steven Law says he has seen at least two cases in recent months where a company has been rejected for repeat Time to Pay agreements and instead entered into a Company Voluntary Arrangement (CVA) – where it repays a percentage of its debt over approximately five years.

Law concedes that although the debt will take longer to repay, in some cases, a CVA is the “most reasonable route” for companies making rep­eated tax deferral requests. 

But, the taxman needs to tread carefully and not withdraw Time to Pay requests for both repeat and new requests – what with the current modest recovery.

The taxman was never designed to be a credit line to businesses and the scheme will have to come to a close at some stage, according to Deloitte tax partner Bill Dodwell. He gives the scheme just two years before it is phased out. By then hopefully banks lending to smaller businesses will have been revived.