TaxAdministrationSmall creditors hit by client tax debt

Small creditors hit by client tax debt

Suppliers may be at risk of missing out as businesses seek to repay HMRC under Time to Pay arrangements

It’s payback time for businesses using the Time-to-Pay tax deferral scheme,
which will be felt along the supply chain.

Advisers say the programme has reached a tipping point because arrears, VAT
and PAYE payments are piling up. This leaves companies’ other creditors,
typically smaller suppliers, set to face the back of the queue for their money.
Suppliers find themselves lower down the pecking order for repayment because
companies make paying back the taxman their first priority as HMRC looks to keep
bad debts in check.

The Time-to Pay scheme has helped companies defer more than £5.2bn in taxes.
However, insolvency experts at Begbies expect a rise in business failures in
line with previous recessions.

David Birne, tax partner at HW Fisher, agreed creditors were put in a tough
position because there was “little prospect of HMRC being paid back” while
future tax liabilities and arrears are still piling up. “The only reason we
don’t have ‘carnage’ [in terms of more insolvencies] is because many creditors
are in just as perilous a financial position, making them reluctant to issue a
winding-up petition. This would put them at risk of losing the bulk of the money
owed to them.”

Business representatives have said the government must stay committed to the
programme if companies are to survive. “10% of business failures are down to
non-payment of bills,” said Stephen Alambritis, chief spokesman for the
Federation of Small Businesses. “For businesses in the scheme it’s a case of
‘can’t pay’ not ‘won’t pay’.”

HMRC said it does not comment on how businesses choose to prioritise
payments.
The taxman added it took a “very dim view” of businesses which did not pay debts
after signing up to the scheme. Firm action would be taken to recover debts,
HMRC added.

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