Fear of 'tidal wave' of business failures as tax help scheme ends

LONDON - The British Government has been warned it faces a "ticking time bomb" of company closures and job losses when a scheme to allow firms to delay their tax payments is wound up.

Experts say the "time to pay" programme has been a resounding success and has kept many businesses afloat, since HM Revenue & Customs (HMRC) would normally have first call on their money and could have pushed them into liquidation or administration.

But insolvency firms expect the £4.8 billion ($10.8 billion) scheme, which has helped 160,000 businesses employing 1.2 million people, will be axed after the expected May general election, so companies will have to stump up their delayed VAT, national insurance and other tax payments.

Malcolm Shierson, a partner at Grant Thornton's recovery and reorganisation practice, said the number of business failures fell in the last three months of 2009 but were still a near historic high.

"We expect the number of liquidations to shoot up even further when the future government stops extending the 'time to pay' tax scheme," he said.

Colin Burke, a partner at Milner Boardman corporate rescue and recovery firm, said a significant number of companies helped by the scheme were falling behind with payments.

He said: "This leaves HMRC with no option but to take action to prevent further default and recover the arrears, thus triggering formal insolvency proceedings. Whereas in the past such proceedings were evenly spread, the Business Payment Support Service has created a backlog which some fear will lead to a tidal wave of 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 Baker Tilly accountants, said: "I think to bring down the guillotine after an election would be a grave mistake because the system has worked really very well to help clients who want to pay, but cannot, to get more time to pay."

But Ministers promised the scheme would not be scrapped overnight and the Government would ensure as much flexibility as possible.

- INDEPENDENT