HMRC tightens the pressure on businesses

The number of businesses seeking finance to fund their tax bills has surged by 132% in the run up to the July 31 tax payment deadline, says Syscap, the UK independent finance provider. Last year, between April 1, and July 31, 2009, Syscap received 67 requests for tax finance, but since April 1 this year that number has shot up to 156.

According to Syscap, the growing reluctance of HMRC to approve deferred payment of tax under its ‘Time to Pay’ scheme has contributed to the surge in funding requests. By July 31 all unincorporated businesses from sole traders through to large partnerships such as law firms have to make the second payment of their previous year’s tax bill (i.e. for the tax year ending April 5, 2009).

Some people feel that the dilemma for HMRC, in the light of falling tax receipts, is deciding if a business (a) is using the scheme as a convenient cashflow source, or (b) is waiting for definite cash inflows to arrive and hence needs time to pay its tax, or (c) HMRC is unwittingly acting as life support for the particular business.

Philip White, Chief Executive of Syscap, comments, “This dramatic rise in demand for funding is stark evidence of how difficult businesses are finding it to finance their tax bills.

“The feedback we have been getting from customers is that HMRC has been gradually tightening the screws on its ‘Time to Pay’ scheme. They are telling us that HMRC is becoming much more reluctant to approve payment plans.”

According to Syscap, customers have also reported that HMRC has made significant changes to the structure of the ‘Time to Pay’ scheme, including:

• Shortening payment deferral plans to just three to six months long, when last year 12 month plans were widely available.

• Increasingly requesting that customers apply for a bank loan or even make a tax payment with a credit card, before they can become eligible for assistance through the scheme. Tax payments by credit card incur an extra card handling charge!

White continues, “Trying to make payments by credit card simply won’t be an option for many because they have already utilised credit limits during the downturn to make other critical payments.

“The problems that businesses are facing trying to secure affordable finance from their high street bank are well documented, so it seems strange that HMRC is suggesting that exact route as a viable solution. It’s just a means of sending businesses away.”

The Bank of England’s latest (July 20) statistics show that overall net lending to UK businesses in May 2010 fell by £2.3 billion.

“For some months we have been calling on the Government to clarify its future plans for the ‘Time to Pay’ scheme. Businesses deserve to know whether the scheme is going to continue to support them or not, especially in the face of evidence which suggests that HMRC is now shifting the goalposts.”

Data obtained by Syscap under the Freedom of Information Act, reveals that the average size of tax deferrals approved by HMRC under the ‘Time to Pay’ scheme (to March 28, 2010) was £17,096, whilst the average amount refused was £70,234, which is more than four times larger.

Again, according to Syscap, there has been a dramatic spike in the number of businesses seeking funding of over £250,000 for tax payments, with 24 approaches since April 1 2010 compared to just seven between April 1 and July 31 last year.

This could be interpreted that HMRC is trying to wean businesses off the scheme by refusing larger deals than the £17,000.

The consequences for a business that has been refused can be severe. If HMRC is unwilling to accept a proposal for a ‘Time to Pay’ arrangement, they can move into a process called “distraint”, where a company’s assets can be seized and sold at public auction. HMRC recognises that this process can force a business to cease trading. HMRC can also petition to wind up a company, where one of the first steps is the freezing of a business’s bank accounts. Last year, HMRC was responsible for 43% of petitions to wind up companies.

(source: UHY Hacker Young)

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