THE FINAL Time to Pay (TTP) statistics led to headlines that HM Revenue & Customs was set to wind down the scheme. There were solid reasons for this – the numbers of arrangements allowing businesses extra time to pay tax bills are decreasing, while the rejection rates are increasing.
Furthermore, R3 – the insolvency practitioners body – warns that the scheme is helping create “zombie businesses”, with unsustainable businesses making speculative applications.
But a close examination of the figures suggests that, although TTP as we know it might be coming to an end, it might well become a different beast, favouring larger applications over numerous small applications.
There is no doubt that there has been a decrease in the number of requests, yet the number of refusals – and not just the refusal rate – is increasing. The figures show that 4,700 arrangements were made in April this year, 6,600 in May and 4,190 in June. This is in comparison with over 15,000 in January, 10,900 in February and 6,950 in March. The figures are also a huge drop year-on-year, with an average of around 10,000 requests granted a month at the same time last year, which itself was a drop on the first quarter of 2010 and the whole of 2009.
An HMRC spokesman put this increase in the number of requests refused down to repeat requests and a belief from HMRC that some companies requesting TTP are not viable. The decrease in requests overall might be attributable to the changing economic environment, he added.
The higher rejection rate could be seen in a positive light, in this case – more scrutiny means less zombie businesses. But the spokesman cited one more reason – HMRC’s refusal to grant TTP requests to companies that pay dividends instead of salaries, as revealed by Accountancy Age. This has not been seen in the same positive light by advisers, who believe that this is punishing sensible tax planning.
But there is an interesting tidbit hidden in the figures that could point to the future direction of the TTP scheme. Two of the tables break the arrangements down by value and by month. The statistics show how many arrangements are made over £100k and how much they are collectively worth.
Detailed research by Accountancy Age shows that, between January 2010 and May 2011, the average value of arrangements made above £100k was around £180k to £190k, with £217k the highest average for a single month (April 2010). However, June 2010 figures show that there were around 140 arrangements made that were collectively worth £45m – an average of £321k each. There were fewer high value arrangements than in any other month yet their collective worth was among the very highest.
HMRC says that this is due to “a small number of very large arrangements” that “distort the overall mean value of arrangements granted”. If these arrangements are excluded, HMRC adds, “the average of all arrangements in a given month is similar to that of other months (£200k)”.
So what can we extrapolate from this? Well, if the average was £200k, the overall worth of the arrangements would be £28m. Therefore, it is a safe assumption that the “very large arrangements” that distorted the figures are collectively worth around £17m (£45m minus £28m).
Because of client confidentiality, HMRC will rightly not disclose information about who has made these large arrangements, or how many of them there have been that makes up the circa £17m.
HMRC considers whether TTP requests above £1m should undergo an independent business review (IBR), led by insolvency practitioners from an HMRC-approved firm to decide whether the business was viable or not. Again, HMRC was unable to provide details of the number of IBRs that it has requested from businesses or that have been accepted.
There is an information vacuum on this. But what it does show is a willingness on the part of the taxman to make mulltmillion-pound TTP arrangements where it can ensure that the Exchequer will not be out of pocket.
And, of course, it does allow us to speculate on what kinds of businesses would be requesting such large delayed payments. Richard Mannion, national tax director at Smith & Williamson, suggests that the most likely explanation is a big business that has suffered “something catastrophic” that has left it with a short-term cashflow problem. This could include one of their biggest customers going into administration – a number of big businesses went down in Q2.
So what are the implications? John Whiting, tax director at CIoT, says that “there was always a sense [TTP] was for small or modest businesses”. With the taxman refusing repeat requests, it might be that the scheme will now be more beneficial to big businesses with cashflow problems.
Mannion adds that we must not forget the scheme has been a big success, with the taxman collecting the huge bulk of the £7bn+ it was promised.
But we should not be surprised to see its nature changing. A smaller business that has relied on it before will not be likely to receive help from the taxman the third or fourth time of asking. But big businesses going cap in hand for the first time might still get a sympathetic ear.
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