Small firms 'running out of time to pay taxman'

Officials at HM Revenue & Customs are taking an increasingly hard line on companies requesting more time to pay tax bills, a consultant has warned, despite the Government's insistence that firms are being given extra help as the fragile state of the British economy continues to affect their cashflow.

Syscap, an independent finance provider in the IT sector, said it had seen a doubling in the number of applications for HMRC's "Time to Pay" VAT scheme that were being rejected. The scheme enables viable businesses to defer paying their tax bills for a period at difficult times for their cashflow.

Data obtained by Syscap using a Freedom of Information Act request shows that HMRC rejected just over 11 per cent of applications for the scheme during the first quarter of this year. The figure for the same period of 2009 was just 5.3 per cent.

Philip White, chief executive of Syscap, said it was too early in the recovery for HMRC to begin withdrawing support for struggling businesses, particularly small and medium enterprises (SMEs).

"SMEs are still finding it incredibly hard to borrow money from their bank to pay HMRC VAT so news that the HMRC refusal rate has shot up is worrying," he said. "GDP growth of 0.2 per cent [in the first quarter of the year] shows the economy is weak, not strong, and that more needs to be done to help SMEs, not less."

One problem for businesses is that VAT bills are often calculated at the moment a customer is invoiced. Those bills may not actually be settled for several months.