How long can HMRC keep holding its breath on waiting for postponed tax
revenues to roll in with no respite in the demand to stagger or postpone tax
The tide may be turning after insolvency experts at Leonard Curtis have
flagged up the first reported case of a company going bust after HMRC rejected
pleas for a time to-pay arrangement. Discussion among advisers has now centered
on how many more will follow.
P&J UK Ltd, a small Stockport-based bookbinder went into administration
“following its failure to secure a Time To Pay Arrangement Scheme with HMRC to
reschedule the payment of corporate taxation”, Leonard Curtis said.
The irony will not be lost on many insolvency practitioners that the entire
workforce of P&J was saved through a pre-pack administration process.
Although P&J is a modest company with just 33 staff, the wider
implications become clear because it is one of 4.7 million SMEs in the UK at the
mercy of the recession.
The situation reinforces the fact that HMRC, although willing to help
companies with a viable business plan, is not prepared to bail out all companies
“Whilst we are trying to be as helpful as possible to businesses, HMRC has a
responsibility to the wider taxpayer base to ensure that we only give time to
pay where there is a reasonable prospect that by doing so the business will be
able to eventually meet their liabilities,” HMRC said.
After allowing £3.87bn of deferred payments, as of 25 October, HMRC has
confirmed: “90% of what we expected to have received has been paid back.”
£2.81bn of deferred payments has been repaid which means there is a £300m
There is increasing speculation that the arrangements are delaying the
inevitable, leaving the taxman to write off the ultimate amount of revenue when
companies go bust further down the line.
But this is a claim the taxman refutes.
“There is currently some adverse press coming from insolvency practitioners
about HMRC allowing huge debts to build up that will never be settled.
“The debt is not building up- the recovery rate on monies due and paid on
time has consistently been between 90 and 94%,” a spokeswoman said.
But with the busy run up to Christmas, businesses are under even more strain
as they try to balance their working capital affairs with doing enough business
to avoid insolvency.
VAT, PAYE and NI contributions add to the pressures and the Business Payments
Support Service is sure to remain busy. However, HMRC is standing by its promise
of keeping the service going for as long as it is needed.
“HMRC has always taken a sympathetic approach to businesses that have genuine
short term difficulties in paying the tax they owe. In such cases, they can ask
the BPSS for a revised timetable (a time to pay arrangement) to pay what they
owe,” the tax collector said.
“This can avoid HMRC taking action that would lead to an otherwise viable
being declared insolvent by the courts.”
The crux of the issue rests on the viability of the underlying business but
it also raises concerns of how many of those companies HMRC has extended the
olive branch to will survive in the long run.
HMRC said it is “acutely aware of the pressures people face when they are in
financial difficulty – especially in the present situation,” taking a ”
sympathetic approach to businesses that have temporary difficulties in paying
the tax they owe.”
The taxman stressed its aim was not to wind up companies or make individuals
bankrupt, but to collect, as efficiently as possible the debts that are due.
“HMRC only initiates winding up or bankruptcy action where it believes this
is the best course of action to protect the interests of the Exchequer in
respect of a particular debt.”
On the issue of repeat deferrals HMRC said it would aim to come to an arrange
ment with the business concerned to give extra time to pay if it was needed and
to avoid taking action that would lead to an otherwise viable business
“HMRC’s experience is that this approach provides a better long term return
to the Exchequer than – for example – forcing insolvency.”
The taxman also explained it was minimising risk by ensuring larger requests
were referred to its debt specialists for scrutiny before being agreed.
“These specialists review the payment history of cases to pick up any where
this looks unsatisfactory. HMRC is closely monitoring trends and carrying out
random compliance risk sampling. The service is aimed at all businesses (small
“All requests for time to pay are considered by HMRC on a case by case basis.
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