HMRC’s latest comment concerning ‘Time to Pay’ (TTP) arrangements has stated that TTP will not be available where companies are paying out dividends to their shareholders. It is HMRC’s opinion that the cash should be used to pay tax before paying dividends the company can not afford!

This will clearly hit hardest those companies where directors have chosen to receive remuneration on a dividend basis rather than by way of salary. The adoption of HMRC’s stance means that two businesses in a similar financial position will receive different levels of support simply because of the way in which their directors have chosen to be remunerated. One has to question the fairness of this approach from a commercial standpoint, although it is quite difficult to argue against the principle taken by HMRC of not paying dividends when a company cannot meet its operating costs.

Even for those companies who do not operate a dividend policy, there is still the hurdle of persuading HMRC that remuneration levels are not 'excessive'. HMRC, when considering TTP applications will consider whether the level of directors remuneration is appropriate given the financial difficulties of the company. If they are not satisfied then clearly TTP will not be granted.

It is clear that HMRC are slowly but surely restricting the circumstances in which they are prepared to provide assistance with TTP. It was never intended that HMRC should be a long term source of funding but simply provide financial support at a time when all else has failed. HMRC are likely to continue to apply more stringent tests and future applications will require careful consideration before presentation to HMRC.

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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A recent Freedom of Information Act request revealed that Premier League and Championship Football clubs between them owed nearly £4million to HMRC under ‘Time to Pay’ (TTP) agreements. Such information may soon be a thing of the past as HMRC has advised that it is currently ‘considering the release of statistics for TTP’ and that whilst the review is ongoing it is unable to provide statistical information for the Business Payment Support Service which operates all TTP arrangements.

Since inception of the service the statistical information released by HMRC has confirmed the extent to which businesses have been able to defer taxes due, thereby providing a cashflow advantage to the recipients. HMRC has also been keen to demonstrate the high level of successfully completed arrangements. Without the availability of such information there will be little evidence to support the success or otherwise of the scheme going forward. Recent high profile administrations have revealed the existence of substantial TTP arrangements which have clearly failed and must impact upon the overall success of the scheme.

A lack of information will result in increased speculation as to the future of the scheme not withstanding HMRC is continuing to maintain that the criteria for considering TTP applications has not changed. Whilst a wholesale withdrawal of the scheme must be considered unlikely, a tightening up of the availability of credit may well be in the offing. Additional supporting information and greater monitoring of compliance in respect of applications are likely to lead fewer businesses successfully benefitting from TTP arrangements.

Such uncertainty regarding the strategy of HMRC has not been helped by what appear to be recent mixed messages relating to TTP. Since April this year HMRC has been able to insist on the receipt of an Independent Business Review where the debt involved exceeds £1million. It has recently been reported that only one such report has been delivered and that HMRC did not agree with its proposals. If this is correct then there must be further concerns about the level of recoveries likely to be achieved under the scheme.

The expectation must be that in the absence of positive support by the Government and HMRC, many businesses will fail to achieve the necessary TTP funding and others will suffer the sudden withdrawal of previously agreed facilities leading to an unwelcome increase of business failures in the months ahead. Even if that support is forthcoming, applications for TTP arrangements will be subject to greater scrutiny and hence professional assistance should be considered when making such applications to maximise the chance of success.

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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The previous Government's support in giving businesses time to pay their their debts to HMRC via the Business Payment Support Service (BPSS) has been widely acknowledged as having provided a lifeline to many businesses. Continued support was assured in their March 2010 Budget although from the increasing number of referrals we have seen in recent weeks there are clear signs that HMRC are taking a stricter view when dealing with outstanding debt. This experience has been supported by information released by HMRC showing there has indeed been an increase in the number of applications being rejected with the rate having risen in the three months to 31 March 2010 compared to 5.3% in the first quarter of last year.

Whilst no formal comment on the continuance of the BPSS has been made by the new Coalition Government, pressure on it to cut the national deficit will inevitably lead to greater scrutiny of all applications made under the scheme. Rejection rates are likely to continue to increase as HMRC will at best apply more stringent criteria when assessing which applications for time to pay arrangements to support. As for existing arrangements in place, breaches of such agreements are likely to lead to support being withdrawn.

As long as the BPSS remains in place it will remain a valuable source of funds for companies able to demonstrate the existence of a viable business. However, businesses that are relying upon rolling over their deferrals are taking immense risk. Alternative funding options need to be explored and be put in place before any deferral period ends. We are seeing an increasing number of businesses following this course. As is always the case the sooner matters are addressed the more likely a distressed situation can be avoided. 

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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The Chancellor said today in his Budget Speech, with reference to small businesses:

"The improved time to pay scheme has helped businesses spread £5bn worth of tax payments over a timetable they can afford.

Between them, these businesses employ over 1.4m people.

The extra time has also helped businesses pay more of the tax owed.

This double benefit has convinced me that the scheme should be extended for the whole of the next Parliament."
 

There's an assumption there that Labour will be in power after the general election! We'll just have to wait and see what happens if they're not.

Time to pay works for viable businesses, but it's not a panacea. It was designed to address a shortage of credit. Other remedies will be needed if your problems are more than a short term cash blip.

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Statistics released in February 2010 have revealed that the number of compulsory liquidations, following the issue of a winding up petition, is increasing.

Previous recessions have shown that, as the economy moves into recovery, the number of businesses facing corporate insolvency increases. The incidences of winding up petitions being issued are, therefore, likely to increase. A new aspect for this post recession period is that many businesses are coming to the end of their 'time to pay' arrangements with HMRC having failed to meet their payments schedule. With HMRC taking a stricter line, failure is likely to result in termination of the arrangement and their instigating a winding up petition.

In the event of a winding up petition being served it is imperative that directors comply with their responsibilities and seek professional advice on the options available for the business as soon as possible.

If your business has or is likely to be served with a winding up petition then you can contact us for an initial free consultation on 0845 603 6253 to speak with one of our Licensed Insolvency Practitioners or alternatively you can email us.

Mercer & Hole's Restructuring & Insolvency team have considerable experience of dealing with a wide variety of insolvency issues. The team specialise in rescuing businesses through operational turnaround and financial restructuring, and through the constructive use of formal insolvency procedures.

Steve Smith 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 Steve you can call him on 01727 869141. Email Steve Smith

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