The business support scheme introduced by the government at the start of the recession to allow struggling firms defer tax payments was initially overwhelmed, with 82,000 arrangements granted in the first three months.
However, the number of Time To Pay (TTP) arrangements, has now plummeted by 67 per cent to an all-time low of just 26,760 granted in the last quarter and just 8,240 arrangements were secured in September.
Last year 256,500 arrangements were granted, worth £4.4bn. But just 114,600 were granted between January and September this year – worth significantly less £1.9bn.
The Office of National Statistics said that 13,900 requests, worth a total of £810m, have been declined by HMRC.
HMRC said today that 46 per cent of the total number of arrangements were for VAT, equating to half of the total value of all arrangements. Sixty per cent of the total number of arrangements were for a period of three or fewer months, equating to 63 per cent of the total value of all arrangements.
Based only on those arrangements mature enough for at least one monthly installment to have been paid before the end of September 2010, it is estimated that £5.41bn has already been paid to HMRC.
Critics of the Time to Pay scheme have said that the arrangements are simply delaying the inevitable and predict that when the government is pulled there will be a wave of insolvencies.
HMRC were also criticised for becoming the country’s biggest bank by allowing so many businesses to simply ring up and ask for a tax deferral – essentially granting money. Since then HMRC has asked for independent business reviews to be conducted before arrangements are granted and has insisted on more information.
The taxman had previously weighed up ending the release of statistical information on Time to Pay arrangements – but the concerns from the industry forced its hand.
Insolvency trade body R3 said: "R3 is still concerned about the number of ‘zombie’ businesses within the Time to Pay scheme - businesses that are only able to service debt but not fund expansion. Today’s figures do not show the number of businesses asking for ‘repeat’ or ‘renegotiated’ arrangements.
If a company asks for more than one Time to Pay agreement or a further extension on their agreed repayment plan, this indicates their financial difficulties may be extremely serious. We understand that the number of repeated deferrals increased considerably from around 33,000 in September 2009 to 79,000 by early 2010. Without new figures, it is impossible to tell how many companies under the Time to Pay banner are severely distressed and at risk of insolvency.
"Worryingly, there are also no available records of how many businesses enter formal insolvency having been in a Time To Pay agreement. Towards the end of last year, two thirds of Insolvency Practitioners had seen companies moving from a Time to Pay agreement into formal insolvency.
"While the majority of companies in Time to Pay surely use this period as a useful breathing space, a worrying minority may be unable to get their house in order. The rejection rate for Time To Pay requests remains at just 5.2 per cent for 2010 under the scheme so there is a low barrier to entry."