'Tidal wave' of business failure feared as tax help scheme ends

The Government has been warned that it faces a "ticking time bomb" of company closures and job losses when a scheme to allow firms to delay their tax payments is wound up.

Experts say the "time to pay" programme has been a resounding success and has kept many businesses afloat in the recession, since HM Revenue & Customs (HMRC) would normally have first call on their money and could have pushed them into liquidation or administration.

But insolvency firms expect that the £4.8bn scheme, which has helped 160,000 businesses employing 1.2 million people, will be axed after the expected May general election, so companies will have to stump up their delayed VAT, national insurance and other tax payments. Malcolm Shierson, a partner at Grant Thornton's recovery and reorganisation practice, said the number of business failures fell in the last three months of 2009 but were still a near historic high. "We expect the number of liquidations to shoot up even further when the future government stops extending the 'time to pay' tax scheme," he said.

Colin Burke, a partner at Milner Boardman corporate rescue and recovery firm, said a significant number of companies helped by the scheme were now falling behind with their payments and increasing the size of their debts to the Government.

He said: "This leaves HMRC with no option but to take action to prevent further default and recover the arrears, thus triggering formal insolvency proceedings. And whereas in the past such proceedings were evenly spread over a period, the Business Payment Support Service has created a backlog which some fear will lead to a tidal wave of business failures. I don't think there is any doubt that it will happen, it's just a matter of when."

George Bull, head of tax at Baker Tilly accountants, said: "I think to bring down the guillotine after an election would be a grave mistake because the system has worked really very well to help clients who want to pay, but cannot, to get more time to pay. If the right was suddenly halted after an election that would be desperately bad news."

Ric Traynor, executive chairman of Begbies Traynor Group, said: "Government support measures are providing welcome relief to the UK's struggling companies in the short term but they may exacerbate problems for some businesses as the need to repay debt catches up with them later in the year."

He said the "insolvency peak" of the recession remained some way off even though Britain officially returned to economic growth in the final quarter of last year. "While business finance is expected to become more readily available during the first half of 2010, we anticipate a rise in the levels of financial distress during the second half of 2010, as temporary financial support measures are unwound."

Government sources admit that there could be a delayed effect on company closures and unemployment when the outstanding tax payments are finally demanded. They point out that many of these firms would have gone under without the state help and insist that most of them will survive since only viable businesses experiencing cash flow problems are being helped.

Officials say it is impossible to estimate how many firms might eventually be pushed into closure when they settle their bills or how many jobs might be at risk. Ministers promised that the scheme would not be scrapped overnight and that the Government would ensure as much flexibility as possible – the whole point of the help in the first place, they said.

A Treasury spokesman said last night: "The 'time to pay' scheme has been hugely beneficial for businesses facing difficulties and will continue to run as long as necessary. Any suggestion that it will end suddenly and businesses forced to repay is incorrect and runs counter to what the scheme was set up to achieve." The Treasury said more than 90 per cent of tax payments are being repaid on time. Of the £4.8bn deferred in tax, some £3.69bn is already in the process of being repaid.

PROMOTED VIDEO
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmReview: A week late, Secret Cinema arrives as interactive screening goes Back to the Future
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Travel
travel
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
artCultural relations between Sydney and Melbourne soured by row over milk crate art instillation
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
filmBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
Arts and Entertainment
Preparations begin for Edinburgh Festival 2014
Edinburgh festivalAll the best shows to see at Edinburgh this year
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
i100
News
Kenny Ireland, pictured in 2010.
peopleBenidorm, actor was just 68
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
Arts and Entertainment
arts + ents
News
Morrissey pictured in 2013
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Financial Analyst - Forecasting - Yorkshire

£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

Business Architect - Bristol - £500 per day

£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

Regulatory Reporting-MI-Bank-Cardiff-£300/day

£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices