More aggressive debt recovery for HMRC owed nearly £1bn from Time to Pay?

On the revelation that HM Revenue and Customs (HMRC) is owed nearly £1 billion in outstanding debts from its deferral scheme, concerns on both sides of the debt are increasing.

HMRC is under pressure from Whitehall to show improvement in its debt recovery and revenue recovery practices, whilst the Time to Pay scheme, largely intended to offer breathing space, has been criticized for just delaying the inevitable for firms who shouldn’t have been offered generous credit terms in the first place.

The Time to Pay (TTP) scheme was introduced during the recession to allow struggling organisations to defer tax payments by up to a year.

It is thought that in the panic filled months following the collapse of Lehman Brothers in late 2008 and the resultant shockwave, that very generous terms were offered under the “time to pay” scheme by HMRC which in turn led to some businesses getting extended credit terms that they should not have otherwise received. It has been suggested that HMRC is now overcompensating in the other direction by being more aggressive, phasing out the Time to Pay scheme, and in doing so trying to prevent more future bad debts as a result of the pressure from Whitehall.

Of the £970 million still owed, more than half – £650 million – was not paid within the initial agreed deadline, with some businesses understood to have deferred their tax debt payments up to four times.

Insolvency trade body R3 has expressed public concern that HMRC is allowing businesses in this fragile state to continue trading instead of seeking professional advice. HMRC on the other hand says that the majority of business who have TTP arrangements were fundamentally viable and were still in business now, due largely to the support provided through the TTP scheme.

Simon Plant, a partner at SFP Group, the corporate turnaround specialists was earlier this year quoted as saying “Time To Pay is the ticking time bomb that no-one wants to mention,”

Scope of the UK companies in crisis

A total of 5,179 companies in the UK were facing critical problems in the second quarter of this year, representing liabilities of nearly £60bn, according to Begbies Traynor. Their Red Flag report, released shortly is expected to show a 12 per cent rise in the number of companies in a critical financial condition compared to the first three months of 2011.

It is worth noting that the number of winding up petitions issued by HMRC in the second quarter of 2011 has more than doubled since the first quarter.

Given the above stance from HMRC and the fragile state of many firms caught up in the £1bn HMRC debt saga one thing that is certain is that more firms will perish with a destructive wake hitting creditors to those firms. And not just HMRC but small to medium enterprises that will be forced to take bigger hits to their bad debt provisions.

If you are worried about the context of this article and want some advice, or to engage CCDR to help protect and shield your business from your debtors going into liquidation, call us today and we can assist you in being proactive to reduce future bad debts through services such as our Outsourced Credit Control, or for those where the debtor isn’t paying, we have a range of services such as Debtor Tracing, Debt Mediation or Debt Recovery depending on what stage your late payment problems is affecting your business.

CCDR is a leading UK Debt Recovery specialist with international reach and a client base of SME’s and multinational organisations.

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