There are an estimated 200,000 businesses currently taking advantage of HMRC's deferred payment plan following the launch of the Business Payment Support Service (BPSS) in November 2008. These ‘time to pay' arrangements have allowed businesses to defer payment of liabilities such as PAYE, VAT, National Insurance and corporation tax during the economic downturn.
Despite the large number of businesses which have taken up the scheme, it has been criticised in some quarters. The deferral of payments due to HMRC is seen as a short term solution and while it may prove successful for businesses who take the opportunity to restructure their finances, there are likely to be a significant number of businesses who are simply putting off the problem rather than solving it. Some commentators also argue that the BPSS is allowing businesses to continue to trade while insolvent.
The threatening cloud on the horizon for businesses who have deferred payments is the prospect of HMRC bringing an end to the BPSS. In December there was a great deal of speculation that the BPSS would be closed, however, the Pre Budget Report confirmed that this would not be the case for the time being. Despite this announcement the general impression is that HMRC are becoming increasingly strict both in relation to new applications and repeat deferrals. The perception is that HMRC now require more robust business plans and there is an indication in the Pre Budget Report that future deferrals may be dependant on an independent review of the future viability of the business.
Although HMRC have indicated that the BPSS will remain available for as long as it is required, it is apparent that they will not allow deferral of liabilities to go on indefinitely. The amount of outstanding revenue resulting from the introduction of the BPSS is estimated to be over £1 billion.
My concern is that most businesses in the BPSS have not used the extra time to put their finances in order, but shortly HMRC will demand payment in full and then large numbers of businesses will immediately enter into formal insolvency procedures.
Any business which has either agreed to defer payments or is considering doing so, should seriously consider whether they will be in any better position to repay the liability to HMRC at the end of the arrangement. With the economy seemingly showing signs of recovery following the recent announcement that the UK economy has come out of the recession it seems unlikely that HMRC will continue to prop up failing businesses for too much longer.
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