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Wave of Closures Feared as Popular Support Scheme Axed
Listed under: News
Published: Monday, February 08, 2010
The elimination of a hugely successful 'time to pay' programme, which has helped more than 160,000 enterprises stay in business during the recession, could see a record number of companies close over the next 12 months, according to recent reports from some of the UK's top financial experts.
The £4.8 billion scheme, which allows struggling businesses to delay some of their bigger tax payments until they are more able to do so, is expected to be scrapped after the next general election in May, meaning companies will be forced to repay any outstanding VAT costs, national insurance or tax bills within a much shorter timeframe – something which many business owners simply won't be able to do.
Despite the number of company closures falling significantly in the last three months of 2009, the rate of insolvencies in the UK remains a serious cause for concern, with the number of enterprises going out of business presently at an all-time high.
Speaking to the BBC News, Colin Burke, a partner at corporate rescue and recovery firm, Milner Boardman, highlights the devastating effect this could have on smaller enterprises in the UK, explaining, “It leaves HMRC with no option but to take action to prevent further default and recover the arrears, thus triggering formal insolvency proceedings. And, whereas in the past such processes were evenly spread over a period, the Business Payment Support Service has created a backlog which some fear will lead to a tidal wave of business failures. I don't think there is any doubt that it will happen, it's just a matter of when."
George Bull, head of tax at accountancy firm, Baker Tilly, adds to the newspaper report, agreeing, "I think to bring down the guillotine after an election would be a grave mistake because the system has worked very well to help clients who want to pay, but cannot, get more time. If the right was suddenly halted after an election that would be desperately bad news."
Ric Traynor, executive chairman of leading business rescue and recovery specialist, Begbies Traynor Group, admits the success of the scheme is debatable, telling the paper, "Government support measures are providing welcome relief to the UK's struggling companies in the short term, but they may exacerbate problems for some businesses, as the need to repay debt catches up with them later in the year."
He continues, “While business finance is expected to become more readily available during the first half of 2010, we anticipate a rise in the levels of financial distress during the second half of 2010, as temporary financial support measures are unwound.”
However, ministers are promising that the programme will not be eliminated over night and that the Government will ensure businesses are given as much flexibility as possible.
Commenting on the controversy surrounding the scheme's closure, a treasury spokesman tells the paper, “The 'time to pay' programme has been hugely beneficial for businesses facing difficulties and will continue to run as long as necessary. Any suggestion that it will end suddenly and force companies to repay is incorrect and runs counter to what the scheme was set up to achieve.”
More than 90% of tax payments are currently being repaid on time, with £3.6 billon of the £4.8 billion presently deferred in tax already in the process of being paid back.
How will the abolition of the 'time to pay' scheme affect your business? Email your thoughts to .(JavaScript must be enabled to view this email address)
The £4.8 billion scheme, which allows struggling businesses to delay some of their bigger tax payments until they are more able to do so, is expected to be scrapped after the next general election in May, meaning companies will be forced to repay any outstanding VAT costs, national insurance or tax bills within a much shorter timeframe – something which many business owners simply won't be able to do.
Despite the number of company closures falling significantly in the last three months of 2009, the rate of insolvencies in the UK remains a serious cause for concern, with the number of enterprises going out of business presently at an all-time high.
Speaking to the BBC News, Colin Burke, a partner at corporate rescue and recovery firm, Milner Boardman, highlights the devastating effect this could have on smaller enterprises in the UK, explaining, “It leaves HMRC with no option but to take action to prevent further default and recover the arrears, thus triggering formal insolvency proceedings. And, whereas in the past such processes were evenly spread over a period, the Business Payment Support Service has created a backlog which some fear will lead to a tidal wave of business failures. I don't think there is any doubt that it will happen, it's just a matter of when."
George Bull, head of tax at accountancy firm, Baker Tilly, adds to the newspaper report, agreeing, "I think to bring down the guillotine after an election would be a grave mistake because the system has worked very well to help clients who want to pay, but cannot, get more time. If the right was suddenly halted after an election that would be desperately bad news."
Ric Traynor, executive chairman of leading business rescue and recovery specialist, Begbies Traynor Group, admits the success of the scheme is debatable, telling the paper, "Government support measures are providing welcome relief to the UK's struggling companies in the short term, but they may exacerbate problems for some businesses, as the need to repay debt catches up with them later in the year."
He continues, “While business finance is expected to become more readily available during the first half of 2010, we anticipate a rise in the levels of financial distress during the second half of 2010, as temporary financial support measures are unwound.”
However, ministers are promising that the programme will not be eliminated over night and that the Government will ensure businesses are given as much flexibility as possible.
Commenting on the controversy surrounding the scheme's closure, a treasury spokesman tells the paper, “The 'time to pay' programme has been hugely beneficial for businesses facing difficulties and will continue to run as long as necessary. Any suggestion that it will end suddenly and force companies to repay is incorrect and runs counter to what the scheme was set up to achieve.”
More than 90% of tax payments are currently being repaid on time, with £3.6 billon of the £4.8 billion presently deferred in tax already in the process of being paid back.
How will the abolition of the 'time to pay' scheme affect your business? Email your thoughts to .(JavaScript must be enabled to view this email address)
