Budget 2010: Warning as Time to Pay scheme is extended

Budget 2010: Warning as Time to Pay scheme is extended

HMRC expected to be tougher on those applying to defer tax payments

Ailing businesses collectively gave a huge sigh of relief when the chancellor
announced that Time to Pay would be sticking around for a further five years.

But extending the scheme for tax bill deferral could be fraught with
difficulties. Running the scheme has proved resource-intensive for the taxman,
and advisers are concerned that it won’t be geared up for the long haul.

The Time to Pay scheme has been regarded as working well for struggling
companies. Alistair Darling said the taxman had deferred £5bn of payments in the
last 16 months since its formation.

But anecdotal evidence has shown that HM Revenue & Customs is taking a
much tougher line on those looking for a deferral. Will this ease up with the
scheme’s extension?

This issue raises some dispute among the profession. Frank Haskey, head of
the tax faculty at the ICAEW, feels that HMRC would take “a harder line on
businesses” seeking tax deferrals in future.

Barry Murphy, a tax partner at PwC, does not agree that HMRC is getting even
tougher at the moment, however he does concede that the taxman is taking a
higher degree of scrutiny in order to fully understand which companies should be
viable for Time to Pay, and which ones fail the criteria.

He would like the scheme incorporated as a permanent fixture in a modern tax
system. Time to Pay has certainly changed the business landscape. Some experts
believe that the scheme has given businesses the opportunity to manage cashflow
where they would have usually gone to their banks for extended credit lines.

“The Revenue could even find themselves taking over as the front-line
creditor,” said John Cullinane, tax partner at Deloitte.

He believes that as a front- line creditor HMRC is seeking greater insight
into a company’s future cash flow – allowing them to assess who should be wound
up and who should be helped.

This will effectively be borne out in HMRC’s proposals for an independent
business review (IBR) for large companies with a tax bill in excess of £1m.

The insolvency profession is currently lined up with conducting the reviews
which could end up giving the taxman an inside track into whether a business is
worth saving or petitioning a winding up order against.

According to Mike Jervis, restructuring partner at PwC, the IBR will put HMRC
on equal footing with other creditors such as the banks, and is to be welcomed.

He believes businesses could be helped as much as HMRC with the reports.

However he adds that someone has to foot the bill.

Although he believes costs should be minimal he is not so sure of the
outlines set by the taxman so far. HMRC is estimating that a single IBR will
cost between £10,000 and £75,000 however Jervis believes that the type of
extension and cash flow at the company will determine the amount of work needed
by the insolvency practitioners.

The estimated revenues generated for the insolvency profession is thought to
be in the region of more than £55m over the five year life cycle.

“The sooner they [HMRC] are recognised by all the creditors the sooner
businesses can get the best options,” Jervis said, adding it would put HMRC on
equal footing with the banks.

IN OUR VIEW

There are concerns that HMRC doesn’t have the resources to incorporate
Time to Pay schemes on a longer term basis. However the Revenue is taking steps
to reduce its

exposure to the costs involved. The introduction of an independent
business review could not only help the revenue rein in the costs of providing
this much needed lifeline to businesses, but could also increase a company’s
chances of receiving bank loans following TTP approval.

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