After my blog noted that nearly 180,000 companies are spreading their tax and VAT payments using the HMRC time to pay scheme (TTP) an article has appeared today in the telegraph. Some insolvency practitioners and lawyers are questioning this scheme asking if its encourages insolvent companies to continue trading.
Well yes it does! Of course the terminal business should not continue to trade but those suffering from debtors not paying on time, slower sales are not BUST business. Remember the Government has actively encouraged a company rescue policy for many years and does not want to see unnecessary liquidations and closures. So the scheme is clearly trying to underpin that aim. Of course some companies will abuse with 2, 3 or even more TTP deals.
My own view is that "2 strikes and you're out", should apply. If the company cannot keep up with two deals, it should seek more radical solutions like CVA, liquidation or administration pre-pack.
Below is the Telegraph article, note the IP calling for a published register of "offenders"!
Lawyers have given the all-clear to HM Revenue & Customs (HMRC) to continue its "time to pay" tax scheme, amid complaints that the Government is in danger of encouraging companies to continue trading when they are insolvent.
Published: 4:45PM BST 03 Aug 2009
The scheme aimed at helping to ease money pressures on businesses during the recession allows companies to delay PAYE and VAT payments. So far HMRC has approved 177,000 requests involving more than £3bn in taxes. The total includes 23,000 cases where HMRC has agreed a second reprieve for £320m in tax payments.
HMRC says more than 90pc of what it expected to receive has been paid. Around 60pc of the arrangements cover delay periods of up to three months.
Insolvency practitioners have been questioning whether the scheme is putting other businesses at risk.
Andy Wood, a partner in Sheffield-based The P&A Partnership, while welcoming the support for business, says it is potentially allowing thousands of technically insolvent businesses to continue trading. He wants HMRC to publish a register of all businesses benefiting from the scheme to allow suppliers to decide whether they should consider trading.
HMRC acknowledges that it has "limited discretion" in operating the scheme but said that after testing the legal framework it is satisfied that the programme is being "appropriately managed".
An HMRC spokesman said: "HMRC is always ready to enter into realistic arrangements to give a business time to pay the tax it owes. But there will be instances when a business is no longer viable and in those cases HMRC has a duty to take the appropriate action to recover as much of the debt owing to it as it can. These actions are always a last resort."
So will the HMRC continue its largess or will it tighten up and go for my two strikes and you're out approach?