'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.
- 1 Games of Thrones actor Lena Headey makes emotional promise to her unborn daughter
- 2 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 4 Female Muay Thai champion hustles coaches to give them a beating
- 5 Picture of couple posing with beached dolphin 'that later died' causes outrage
Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
Purity balls: Girls in the US making virginity pledges as fathers vow to 'protect purity'
Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
Female Muay Thai champion hustles coaches to give them a beating
16-year-old girl beaten and burned alive by lynch mob in Rio Bravo, Guatemala
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
Report finds that Britain's wages are the most unequal in Europe
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...