The Chancellor’s announcement in the Pre-Budget Report that HM Revenue & Customs’ Business Payment Support Service – the “Time to Pay” scheme – would continue for “as long as needed” was welcome news. The last thing that businesses need at the moment is to have this crucial lifeline swept away from them.
The scheme has, so far, helped about 160,000 businesses, allowing them to continue to trade whilst deferring over £4bn in tax. However, it’s very clear that persuading HMRC to agree to a time to pay arrangement is becoming more and more difficult.
In the early days of the scheme HMRC carried out little or no due diligence before agreeing deferments. In a number of cases, a time to pay arrangement had little prospect of success, and it was simply a question of delaying the inevitable. Estimates suggest that in about 1 in 12 cases businesses have failed to make any repayments at all. HMRC have not tracked whether businesses allowed to defer payment have proceeded into formal insolvency.
We believe that it’s vital that HMRC does not allow the pendulum to swing too dramatically to the other extreme. They have already conceded that businesses trying to roll over existing arrangements are facing much tougher questioning than in the past and negotiations are likely to be much more rigorous in the future. Larger businesses, with tax debts of over £1m, will be required to provide an independent review of their needs.
Of course, it is not the function of HMRC to act as a bank of last resort, and it should certainly not be giving underperforming businesses an unfair advantage over successful ones. Nevertheless, there is clear benefit to the economy as a whole in preserving viable businesses that are experiencing short term difficulties, incidentally safeguarding future tax revenues and avoiding the unnecessary write-off of existing legitimate tax debts, to say nothing of easing the burdens on public funds which would be created by redundancies, family support, retraining and so on.
In our experience a time to pay request should be accompanied by a report which sets out a brief overview describing recent trading performance, the actions which have been taken to address underperformance, such as cost savings or operational restructuring, and then supports the long term viability of the business with reference to profit and cash flow projections. Importantly, the report should also address what other steps have been taken to raise finance. Needless to say, it’s crucial that any proposal is realistic and that, once agreed, the business complies with the arrangement. The existence of a failed arrangement undermines credibility, often fatally.
Our experience shows, too, that HMRC often appreciate an independent perspective when assessing the merits of a proposal. At Burton Sweet Corporate Recovery we have the experience and expertise to provide that objectivity, and we would be delighted to assist accountants, lawyers and other advisers in supporting their clients.
IMPORTANT NOTE: This article is intended for general information only. It is not a substitute for specific advice which should be sought for specific cases. We cannot accept responsibility for any action (or decision not to take action) made in reliance on the content of this publication.