Company insolvencies have decreased in the first quarter of 2010 by 8.4% bringing the annualised figure to a total of 4,082, a decrease of 17.8% year-on-year. But according to Steve Clancy, Partner at MCR Tax Arrears Solutions, the figures though could be hiding a hidden tsunami of corporate failures, as HMRC increasingly flexes its muscles.

“The decline in the number of corporate insolvencies needs to be seen within the context that over the past quarter the economy has been on pause because of the uncertainty of the result of the UK General Election. Furthermore many of our banks are now in public ownership, and political imperatives may have dictated HMRC not to call in tax debts,” stated Steve.

According to the Budget presented to the House of Commons by then Chancellor Alistair Darling: “HM Revenue and Customs’ (HMRC) Business Payment Support Service (BPSS) has been at the heart of the Government’s support for businesses through the recession, enabling viable businesses experiencing temporary financial difficulties to spread their tax payments over an agreed timetable.

“Since it was launched at the 2008 Pre-Budget Report, the service has reached over 300,000 arrangements to give over 200,000 businesses, who collectively employ more than 1.4 million people, more time to pay over £5.2 billion of tax. The vast majority of these arrangements have been with SMEs.”

“On top of this figure needs to be added the overall debt owed to the HMRC by business which according to The National Audit Office, has risen by £2.7 billion to £27.7 billion in 2008-9. HMRC has already increased the provision for bad debt to £11.2 billion as of March 31st 2009 – 40% of the total owed. And we have yet to get an insight into the debt provisions being made for the current year,” stated Steve.

Steve stated: “The HMRC has provided a number of fast track services to support businesses that have been affected by the economic downturn. But these figures are alarming and there can be no doubt that the total now owed to HMRC could be over £30 billion. In other words HMRC is now acting more like a lender of last resort than a tax collector.”

“But the growing numbers of cash strapped companies that have put off paying taxes are at risk of insolvency because of this. Increases could start as soon as the end of the year as, despite the scheme still being available, we have seen HMRC tighten up on the procedure considerably,” he added.

“After all, if a company cannot pay its current debt, it certainly can’t pay this debt plus the arrears to HMRC,” he continued. “It is crucial that early engagement takes place with all parties involved, including lenders, so that potential solutions can be reviewed as early as possible.

“Business owners also need to be aware that even with the introduction of deferred tax payments, all tax liabilities will still need to be paid albeit over longer and more manageable timescale in addition to meeting all current and ongoing obligations as and when they fall due.

If you would like discuss how our Debt Recovery/Debt Collection service can assist your business, please visit the ‘Debt Recovery/Debt Collection’ section on our website,  contact us on +44 (0) 151 515 3014 or email us.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk)  and the full original article can be found by clicking  here.

Businesses are cutting back on recruiting accounts staff, even though their role in keeping the cash flowing is more vital than ever.

Indeed many of those currently in employment fear for their jobs as businesses rein in their recruitment plans and look to make further savings, even though it could cost them dearly in the long run.

The warning comes from Philip King, Chief Executive of the Institute of Credit Management (ICM) which carried out the survey of its 8,500 Members working across all sectors of the economy.

King believes that when times are tough, and cashflow is under pressure, this is the time to invest in new staff, rather than cut them:

“Our experience over many years shows that businesses who invest in professional credit managers do better than those who don”t,” he says. “But despite this accepted truth, there are still those that do not value their credit department in the way that they should, and see it as a cost rather than a benefit.”

In the figures published today, 16% of credit managers questioned said that their departments had been hit by redundancies, most commonly as a result of restructuring (41%), the loss of business (27%), or downsizing (18%). Jobs being axed ranged from senior financial partners to junior accounts clerks.

Of those businesses that were recruiting, the primary reason was to replace staff that had already left (52%) ­ a fact that appears to bear out Mr King¹s concerns:

“Businesses are not expanding their teams except in a handful of cases,” he says, “and the only recruitment activity we are really seeing is to replace those that have already left ­ and in some cases left the industry. There is also evidence that businesses are replacing senior credit managers with more junior staff under the false pretext of saving money.”

When questioned as to why companies are not recruiting, nearly a third of Members (31%) said that there was a recruitment freeze in place and 14% that there had been budget cuts. Of the firms that were looking to recruit, 60% of jobs being advertised were permanent, 17% temporary, and 23% of businesses were looking for a mixture of both.

Mr King recites one story of a cash-rich business that decided not to temporarily replace a credit manager who left on maternity, in order to save money. Within months the cash had dried up, and they were having to ask the bank for a loan to pay the staff:

“They thought they could get by,” he says, “but when there is no-one there to focus on the job, cash can very quickly dry up and an otherwise healthy business can fail.”

Members were surveyed from within a variety of different sectors, including aerospace, automotive, building and construction, catering, distribution, financial services, leisure, manufacturing, telecommunications and travel.

If you would like discuss how our Debt Recovery/Debt Collection service can assist your business, please visit the ‘Debt Recovery/Debt Collection’ section on our website,  contact us on +44 (0) 151 515 3014 or email us.

Please note: Information in this blog post is content property of Business Credit Management UK (www.creditman.co.uk)  and the full original article can be found by clicking  here.