HMRC has to find the right exit strategy

With around 40% of that number accounted for by the deferral of VAT, that
means around £1bn in VAT, or not far short of 2% of the total revenue from VAT
expected in 2009-2010.

The numbers are surprising because, despite the fact that there was no limit
set to deferment, they are now at a level that few would have envisaged. Indeed,
the Business Payment Support Service was due to run only until the Budget this
year, but the government saw fit to extend the scheme, enabling more businesses
to seek some relief from their tax bills. Of course, the deferment’s are a good
idea. Business needed help as the economy went into recession and deferring tax
was one way of helping many keep their heads above water.

And, though HMRC says they are filtering requests, most are granted in around
ten minutes of asking , meaning there can be few obstacles to obtaining help.

But government must be concerned about just how much tax will be deferred and
what that might mean for UK’s fiscal position. More to the point, there is the
looming tax bill that will come once government feels that it is appropriate to
call time on the service and deferments.

The issue here is the lack of clarity about when that will be. At the moment
the department’s line is that the payment support service will continue while
there is demand. But it may have to start looking at other ways of helping as
calling in the deferred tax may undo all its good work. HMRC needs to think
long-term about its exit route from what has clearly been a successful service
so far.

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