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.
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