Huge rise in reliance on VAT by instalments

HMRC: no plans to relax the rules

Advisers say there has been a spike in the number of companies spreading out their VAT liabilities as they try to avoid the threat of going under.

Observers believe quarterly VAT bills due at the end of July will be a major test of their resilience as the downturn begins to bite.

Paddy Behan, head of indirect tax services at Mercury Tax Group, said: ‘The word on the grapevine is that there has been a huge upsurge in the number of businesses setting up these arrangements.’

Time to pay agreements relieve some of the pressure on companies by allowing them to pay their quarterly VAT bills in instalments, with interest added.

Businesses have been urged by experts to smooth out the effects of the taxman’s demands as the harsh economic conditions show no signs of letting up.

‘We are advising more people on time to pay arrangements,’ said PriceWaterhouseCoopers tax partner Stephen Coleclough. ‘In the current environment it is better for people to go to the taxman and say, “We have a temporary cashflow problem”.

‘From the Revenue’s perspective these arrangements make sense because they will lose a whole income stream from VAT, PAYE, etc if the business collapses,’ he added.

One insolvency expert said the added pressure of quarterly VAT bills could lead to a spike in failures in the near future.

‘The end of July and the beginning of August could be a very interesting time,’ said Nick Hood of Begbies Traynor.

HM Revenue & Customs said it had no plans to relax the rules by giving companies extensions on paying their quarterly VAT bill, but confirmed that businesses had the option to spread out the payments.