Syscap, one of the leading UK independent finance providers has said new figures indicate that HMRC is increasingly denying applications for deferred tax payments via the Time to Pay initiative.
New arrangements agreed by HMRC for the Time to Pay initiative dropped by 43% over the last year from just under 58,000 the first quarter of 2010 to under 33,000 in first quarter 2011. The tax payments deferred combined value dropped by 40% from £890m the first quarter 2010 to only £530 in first quarter 2011.
The proportion of rejected applications over the same period increased by 50% with over 1130 companies having their applications rejected each month in this year’s first quarter.
It is also becoming more stringent with payment terms. HMRC, in the first quarter 2010, offered 14% of the successful applicants a ten month to one year payment plan. But in 2011 in the first quarter, only 10% of the successful applicants were offered those terms. Today, payment schedules of three months or less represent over 60% of the Time to Pay agreements.
“Time to Pay” was designed by HM Revenue & Customs to allow viable businesses to defer tax payments during the downturn. It has been seen by many business organisations as one of the most effective of the programmes designed by the Government to stimulate the economy during the downturn.
The latest economic data shows that the economy grew by just 0.5% in the three months to the end of March, just making up for ground lost in the last quarter of 2010.
Philip White, Chief Executive of Syscap comments: “We may not technically be in recession, but if you look at the six month trend, growth is flat-lining, so we have to cross our fingers that a double-dip recession will be avoided.”
“These new figures show that HMRC is rapidly winding down the “Time to Pay” scheme at a time when companies are clearly still struggling.”
“HMRC is being far tougher about deferring tax payments – applicants that might previously have been successful are now being rejected.”
Philip White explains that as well as battling the sluggish economy, companies have also been put under pressure by the increase in VAT, which rose to 20% in January 2011 and has strained business cash-flow.
Philip White says: “Not only are companies faced with the rise in VAT, but unincorporated businesses such as partnerships and the self-employed also need to make sure that they have the cash available to make the six monthly tax payment due at the end of July.”
“Many of these kinds of businesses are now approaching us for funding because HMRC is making it more and more difficult to secure a tax deferral through the “Time to Pay” scheme.”
Syscap says that their customers have reported significant changes introduced by HMRC to the “Time to Pay” process, including asking businesses to apply for a bank loan or even make a tax payment with a credit card, incurring an extra card handling charge, before they become eligible for assistance through the scheme.
Philip White says: “HMRC may need to reconsider their decision to wind down the “Time to Pay” scheme. The economy remains sluggish and we have yet to feel the adverse impact of the public sector cuts, which only came into effect at the beginning of April.”