'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.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Call The Midwife: Miranda Hart as Chummy
tvCall the Midwife Christmas Special
Sport
Laura Trott and Jason Kenny are preparing for the Commonwealth Games in Glasgow
sport
Arts and Entertainment
Sir Bruce Forsyth with Tess Daly in the BBC's Strictly Come Dancing Christmas Special
tvLouis Smith wins with 'Jingle Bells' quickstep on Strictly Come Dancing's Christmas Special
News
news
Arts and Entertainment
tv
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

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there