HMRC recently issued statistics for the Business Payment Support Service for the three months ended March 2011, their headlines, as you would expect, are the level of support they have provided to date and the reducing level of applications received since the scheme was introduced at the end of 2008.

A closer investigation of the statistics highlights an ever increasing level of applications being refused. During 2009 approximately 240,000 applications were received of which only 2.7% were declined. In 2010 the figures were 139,000 and 6.0% respectively, whilst the figures for the three months to March 2011 are 33,000 and 10.1%. Perhaps the most worrying statistics are revealed when one compares the first three months of this year to those of 2009 and 2010 with the number of rejections for the current year being 3,400 compared to 2,440 in 2009 and 2,369 in 2010, despite a 60% drop in the number of arrangements being applied for. There is no doubt that the trend is an increasing rate of rejection.

Notwithstanding this increase in the level of rejections, HMRC maintain that their criteria for considering applications has not changed since the inception of the scheme. They will support what, in their view, is a viable business. The reality appears to be that, when considering applications, they are requesting more detailed information which highlights concerns which would not have been apparent from a more cursory glance. Inevitably this has led to and will continue to lead to an increase in the rates of rejection.

Despite the increased rates of rejection there does appear to be a future for the Business Payments Support Scheme, HMRC continue to reaffirm that there is no intention to close it down. Realistically, however, gaining acceptance of an arrangement will continue to become tougher as HMRC carry out more thorough investigations into the viability of the applicants and not unreasonably wish to satisfy themselves that they are the bank of last resort and not simply a cheap form of finance.

If you are going to maximise your chance of success, be prepared, make sure your application withstands scrutiny by HMRC. Ensure the application demonstrates the viability of the business going forward and that you have exhausted alternative funding opportunities. Any inconsistencies highlighted by HMRC will impact on the overall credibility of the proposal. There can be real benefits in obtaining an independent review prior to submission to HMRC to maximise the chance of obtaining what may be a last lifeline for the company.

Peter Godfrey-Evans is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Peter you can call him on 01908 605552.  

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Statistics recently issued by HMRC for the Business Payments Support Service (BPSS) since its inception confirm there has been a 45% drop in the number of arrangements approved for the first nine months of 2010 compared to the same period of 2009, whilst the level of rejections has doubled to 5.2% over the same period. A closer inspection reveals a rejection rate of 6.9% for the three months ending September 2010, indicating a significant upward trend over the last few months.

The information released highlights other changes in ways in which the Time to Pay scheme is being used by taxpayers. Whilst over the period from inception deferrals of up to three months have accounted for 60% of all arrangements, this has increased to 73% for the third quarter of 2010. The average value of each agreement throughout the period has remained static at about £17,000 with VAT deferrals accounting for just under half of all arrangements.

The overriding message is there has been and continues to be a general tightening on the availability of funding through the Time to Pay system. Following the release of this information HMRC continue to maintain that there has been no change in the principles applied when considering applications for Time to Pay agreements. Ultimately recovery of the tax due and viability of the business are their only concerns. The current view from professionals and businesses themselves however is that HMRC are demanding more information in support of applications and expecting businesses to demonstrate that they have exhausted all other potential sources of funding. Such sources include the use of company credit cards notwithstanding the penal level of interest they carry and the potential impact on the company’s viability.

In the coming months HMRC are likely to continue to make Time to Pay arrangements available to what they deem to be viable businesses thus maintaining their argument their policy has not changed. However the change which has led to the reduced availability of funding is that they have become more inquisitive, requesting more information and not accepting all the information given at face value. As a result the viability of more businesses has been called into question.

With economic conditions unlikely to ease in the months ahead, funds from all sources will remain difficult to obtain. Extended credit from the likes of HMRC will be subject to greater scrutiny, with businesses likely only to get one chance. It is therefore essential that a sound business proposition is made which can hold up to detailed consideration. Professional assistance in putting forward requests for funding is likely to help maximise the chance of success.

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The headlines from the statistics released last week by the Insolvency Service focus on the record increase in personal insolvencies. There has been an increase of 24.9% on the same quarter last year and 2009 as a whole is 25.9% up on the previous year.

As far as corporate insolvencies are concerned there are marked differences across the different types of insolvency procedure. For liquidations there has been a 23% increase in cases on 2008 whilst the numbers for administrations, after eliminating anomolies, shows just a 1.7% increase for the year. By comparison to the changes on the same quarter last year liquidations have a 1% fall but administrations a drop of some 34%. A closer examination of the numbers show that across all forms of corporate insolvencies the numbers increased throughout 2009 with liquidations and administrations peaking in the second quarter of 2009. The notable exception was company voluntary arrangements, which are continuing to rise. The reduction in liquidations and administrations is likely to be as a result of the reticence of the banks and HMRC to initiate formal insolvency proceedings during this period with the latter promoting their Business Payment Support Service (so called 'time to pay' arrangements) . There is also a greater willingness to support CVAs to maximise the chance of recovery from creditors.

The key question is what is going to happen in the coming months? History dictates that now that we are technically out of recession we can expect the number of insolvencies to climb in the months ahead. Following the recession of the late eighties and early nineties, the level of liquidations did not peak until 1992. This time around the recession has hit harder and whilst I think there can be little doubt that corporate insolvencies will begin to climb again in the near future and will take a long time to fall back to pre-recession levels, the timescale and the level to which they will rise is more difficult to determine.

Peter Godfrey-Evans is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Peter you can call him on 01908 605552. 

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