With the then chancellor, Alistair Darling stating the taxman had deferred £5bn of payments in the 16 months since the scheme’s formation, it was apparent that a huge number of businesses were reliant on the scheme to ensure financial liquidity and, in many cases, to survive.

However, news in August of this year that HMRC is withholding statistical information regarding the tax deferral scheme has been met with alarm by many insolvency practitioners. The information is used by these practitioners to determine whether a business is likely to be successful in achieving delayed tax repayment under the scheme, and the fact that HMRC is withholding it has been viewed by many as an indication that the Government is attempting to dissuade businesses from using the scheme.

A number of commentators have stated recently that HMRC has become increasingly reluctant to approve deferred payment of tax under the scheme. There is a concern that many businesses are using the scheme as a convenient source of cash flow, rather than using it for its purpose – to support businesses by providing a source of liquidity while waiting for cash inflows to arrive. However, Andrew Bullard, head of business at specialist invoice finance broker Cashflow UK, highlights another factor:

“In some cases, the HMRC is being used as life support for a number of businesses, which, without the scheme, would not have the levels of funding needed to survive.”

Bullard continues:

“The feedback we have received from a number of clients is that the HMRC has been tightening the screws on the scheme, as the Government looks to recoup revenues from as many sources as possible in an attempt to reduce the national deficit. Businesses are being advised to apply for bank loans or overdrafts, or even make a tax payment with a credit card, before applying for the scheme. In many cases, we’ve also seen the payment deferral period reduced to as little as three months, when a few months ago the majority of businesses were able to apply for a 12 month deferral.”

The Government’s attempts to recoup tax payments and wean businesses off the scheme, while justifiable, could have a significant impact on insolvency levels. Latest business insolvency figures for the second quarter of 2010 show a 0.5 per cent increase on the previous quarter, at a time when the UK economy is demonstrating significant growth.

Mr Bullard argues this marginal increase could be as a result of HMRC’s stance on TTP:

“HMRC is making a big push to recover the taxes it has deferred, and while the scheme has steadied the ship in the past and reduced the number of company insolvencies, this may change going forward as the Government attempts to ensure VAT and PAYE contributions are paid on time. The irony is that the Government is attempting to recoup these taxes in order to generate extra income and reduce the national deficit, yet these measures could in turn lead to a reduction in business confidence, which could have a knock-on effect on GDP.”

Mr Bullard continues:

“Businesses have been forced to look for additional sources of finance as their eligibility for TTP weakens, and we would urge these businesses to look outside of options like bank loans and overdrafts and consider the wealth of funding available to them, such as factoring or invoice discounting.”

ORIGINAL ARTICLE FROM INSOLVENCY NEWS