Has Time to Pay been shown the backdoor?

HM REVENUE & CUSTOMS’ decision to stop publishing information on tax deferral schemes has left a cold feeling of dread lingering in the insolvency community.

Insolvency practitioners have come to rely on tax deferrals when they are called in to rescue ailing businesses.

Many fear the end of the statistical reports could be a backdoor route to dropping the scheme altogether, despite assurances from HMRC to the contrary. Although the absence of the regular reports is unlikely to make life so difficult insolvency practitioners will be unable to do their job, it has raised concerns as to what will happen next.

Will HMRC now dramatically increase its refusal rate because there will be no easy access to publicly available information? Although refusal rates in the scheme known as Time to Pay (TTP) are in single figure percentages, they have in fact doubled.

Rejection numbers for TTP increased to 3,390 for the first three months of 2011 compared with 2,360 for the same period last year. The proportion of refusals also doubled for the year 2010 (5.8%) compared to 2.7% in 2009.

However, according to an HMRC spokesman there are no plans to cut deferral arrangements and it is not phasing out the scheme.

When the taxman announced earlier this month it would stop producing its quarterly statistical report for deferrals, it claimed producing the report was “resource-intensive” and that there was “very little interest” in them, following a consultation earlier this year.

Insolvency practitioners believe the taxman’s true agenda around deferrals is yet to become clear and that it’s motives at this stage also remain murky.

The concern remains that an absence of publicly available statistics presents the first step in phasing out the scheme.

Regardless of the official line, practitioners believe the government is coming down harder on businesses that are unable to pay their taxes and it has not been shy with winding up orders – becoming the largest petitioner in the past year.

But, many do not blame the taxman for its harder line towards struggling businesses. HMRC is an unsecured creditor in the event of an insolvency process, meaning they are one of the last to be paid when a company enters an insolvency process.

It was never designed to be a credit facility for businesses, and it certainly doesn’t have the resources to act as a bank when a company is in trouble.

However, the deferral scheme has made the taxman take on the role in the last few years. It has now become the creditor trying to save the economy, which is not really where it wants to be according to Finbarr O’Connell, managing partner of insolvency firm Re10.

Stopping publication of the report could be “HMRC moving away from publicising itself as a credit line,” he said.

The taxman is owed £970m from tax deferral schemes with the majority, £650m, not paid within the initially agreed deadline. This has become a resource draining scheme for HMRC which now has to dedicate employees to supervising the agreements, keeping track of those that default, and approving them.

But, for many businesses, deferrals can offer a vital lifeline if they are in temporary difficulty. Insolvency practitioners called in to rescue businesses still see the agreements as one of the most cost effective ways to allow the company breathing space, while it restructures.

An estimated £7.37bn worth of 428,800 arrangements have been made since its introduction in November 2008 to the end of March 2011. More than £6.3bn of that has already been paid back to HMRC, indicating that the majority of deferral agreements are successful in helping prop up viable businesses.

Either way the latest announcement has made clear that although the scheme is due to run until 2015, the latest move has thrown doubt on its future. But, for the time being it is business as usual. But without the stats.

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