James Moore: If the taxman plays hardball we're all in trouble

The taxman's 'pay now' demand is enough to tip a business over the edge

All things considered, the Government has done a reasonable job during the recession of alleviating the worst of its effects.

That does not mean the role played by ministers (and especially the Prime Minister) in getting us into this mess should be downplayed. But credit where it's due. At least for now. Because there is a real danger that much of that good work could be undone if a future government chooses to aggressively reverse a concession that has done much to keep hundreds of small businesses from spiralling into receivership. I'm talking about tax, and the way small businesses have been allowed to defer some of it. As The Independent reveals today, there is a very real prospect that, after the election, those businesses will be told to pay up. Immediately. That could be very foolish.

One of the striking things about the recession is how some of the most dire predictions about insolvencies and unemployment have not come to pass. Now the recession is over, we are past the worst, right? Well, no. The problem is that unemployment and insolvencies don't tend to peak until several months after a recovery has begun. That is because creditors (and especially banks), which have been willing to offer some leeway during a recession, start demanding repayment. This at a time when businesses that have struggled through the worst of a downturn, and (sometimes) deferring payments to their creditors, emerge weakened. The "pay now" demand is usually enough to tip them over the edge, before they can repair their balance sheets. The effect will be greatly exacerbated if Revenue & Customs comes to call.

Banks are scary enough but the tax man is a different ball game. We all know about Britain's yawning deficit – tax receipts are desperately needed to keep the public finances balanced. But if the Government allows the tax man to play hardball it risks undoing much of its good work – killing off potentially viable businesses which might be able to provide tax receipts and employment for years to come if they were given a little extra grace.