Ask the Expert: Tax payment
All answers are for general guidance only. Each case must be handled on the individual facts.
Q: Are businesses paying their trade creditors in priority to their taxes?
Anecdotal evidence suggests that businesses are finding it more difficult to collect outstanding debts and so are extending the payment terms with their own creditors as far as possible. This of course exacerbates the problem as credit becomes squeezed in all directions.
The result is that many businesses are living very much hand to mouth with their cash resources and where they have not been subject to constant chasing, liabilities have not been paid.
HMRC issued a statement last month advising that they had appointed ten Debt Collection Agencies (DCAs) to collect between £500m and £1.5bn of outstanding debts. Whilst full details of the project are yet to be revealed, it is understood that the DCAs will be collecting relatively small and older outstanding liabilities in line with the pilot scheme that was held between 2008 and 2010. HMRC will continue to target and collect the larger liabilities themselves as this is where their internal resources are necessarily focused.
The DCAs will only be paid for amounts collected and can therefore be expected to be more persistent than HMRC has recently been. Before a case is transferred to a DCA, the business will receive a letter from HMRC providing a last chance to pay. The taxpayer should take this opportunity to agree repayment terms with HMRC as these may be more beneficial than could otherwise be negotiated with a DCA.
The majority of people in business pay their tax on time and only ignore demands should they have insufficient funds. Accordingly, the concern is that the collection of these old and unbudgeted for payments may be the final item that will break a business. Business owners must take advice as soon as possible to either agree terms for the repayment of their liabilities on an informal basis, or to ascertain whether one of the more formal restructuring processes available in the insolvency legislation would be more appropriate to their circumstances.
The advice from the insolvency profession, as ever, is to take advice sooner rather than later as this gives a much better opportunity to save the business.
Contact details
Adrian Allen is a partner at Baker Tilly Restructuring and Recovery LLP covering the East Midlands and Yorkshire regions.
01733 260780 / 0113 285 5000
adrian.allen@bakertilly.co.uk
Meet our local team: http://www.bakertilly.co.uk/services/recovery/east-midlands-team.aspx
Read more from Baker Tilly Restructuring and Recovery www.bakertilly.co.uk/evolution
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