Larger practices offered support over tax liabilities

Tax doesn’t have to be taxing, goes HMRC’s slogan, but the reality is
somewhat different for many businesses – accountancy practices included – that
have battled to survive the recession.

Burdensome tax liabilities have seen businesses appeal to the taxman for a
temporary reprieve under the Business Payment Support Service as they strive to
meet cash flow demands.

Now, industry figures say tweaks to the BPSS making it easier for LLPs to
apply mean accountancy practices will be able to grasp this olive branch from
the taxman. As the UK fights its way out of recession, traditionally a time when
cashflow becomes tighter, tax experts believe firms will be lining up to take
advantage.

Cash-strapped accountants and other professional practices would be placed on
a similar footing as a company or individual taxpayer in terms of negotiating
with HMRC on time-to-pay for tax liabilities, Smith & Williamson forecasted.

This development is a major breakthrough for any sizeable practice which
might be feeling pressure on cash flow in the current climate. Inevitably,
problems and inconsistencies occurred when there were say, 50, 100 or more
individual partners, typically spread over different offices each trying to draw
up their own arrangement with their local tax inspector,” said Richard Mannion,
national tax director at Smith & Williamson. “The old system just didn’t
work.”

he previous framework froze out larger partnerships because taxable profits
are all distributed to the individual partners. As a result, it treated the
partnership itself as having no income tax liability and HMRC’s systems operated
on the premise that each individual partner should make a separate time-to-pay
application.

Members of a partnership which cannot pay its tax bill due to cashflow
problems facing the firm can now arrange a joint time-to-pay agreement with the
tax authorities – and the implications are broad.

The extension to the service can be applied irrespective of the aggregate
size of the partners’ tax liabilities. However an application on behalf of a
large partnership with over £1m of tax at stake will be dealt with by senior
officers and the firm should expect to be asked to provide detailed forecasts.

There has been some confusion over repeat tax deferrals but HMRC has
confirmed that repeat requests for time-to-pay can be arranged, although
taxpayers who are applying for a second extension should expect tougher
questioning.

“As we come out of the recession, more businesses typically run into problems
as cashflow comes under increased pressure. Moreover, with the 31 January tax
deadline fast approaching, many firms will need to dig deep to fund the final
tax bill for the 2008/2009 tax year. So the new extension in the rules has come
at just the right time,” Mannion added.

HMRC said no change of policy or eligibility had been made within the BPSS
but confirmed it had recently “made some internal changes in how it gathers
information where members of a partnership are requesting Time-To-Pay
arrangements”.

IN OUR VIEW
Any measure that keeps the tax wolf from the door for practices can only be
welcomed. It remains to be seen how many of these joint applications the taxman
is willing to grant in its own struggle to maintain tax revenues.

Further reading:
hmrc.gov.uk/pbr2008/business-payment.htm