The Time to Pay scheme was implemented set up during the recession to allow businesses to defer their tax payments. Over half of requests for rearrangement concerned less than £10,000 of tax, underlining the importance of the scheme to small businesses.
However, recent figures show that of the £970 m due for payment, only £320m is due to be paid as arranged, leaving a staggering £650 m not paid as agreed. R3, the UK trade body for Insolvency Practitioners, understands that some businesses have now referred their arrangements up to four times.
These figures indicate that a significant number of the businesses in Time to Pay arrangements are in financial distress and will be unable to pay their liabilities when they fall due. R3 President Frances Coulson commented:
“Time to Pay has played a vital role in preventing the spike in corporate insolvency numbers that usually follow the end of a recession, however these figures give rise to serious concerns about the way the scheme is operating. Time to Pay should be used as breathing space for businesses undergoing a time of temporary difficulty. However, if a business is on their third or fourth referral that should act as a warning sign; it indicates that there are underlying problems with the business’ cash flow. It should make HMRC question the financial viability of that business.”
R3 members are seeing more and more insolvent businesses who had previously been in Time to Pay schemes. Coulson continues:
“Research shows that one in four corporate insolvencies are caused by another business going into insolvency – this is known as the domino effect. This means that should the businesses who have had multiple Time to Pay arrangements fail, not only will the Government be left out of pocket, but a considerable number of businesses would be left exposed. Businesses should be properly assessed at the outset to ensure that they are using the scheme appropriately and not as a long-term credit facility.
“If a business is able to use the Time to Pay scheme as an alternative credit facility, they are being given an unfair advantage over those businesses who meet their financial obligations in a timely manner.
The definition of insolvency is being unable to pay debts when they fall due, therefore, I would advise those businesses who are undertaking repeat Time to Pay arrangements to seek professional advice.”
Does your business have cashflow problems? Check out of Guide to Credit Control.
