10 May 2010

Despite the continued difficulty businesses are having to get bank funding for tax payments

HMRC has doubled the percentage of “time to pay” applications relating to VAT that it rejects says Syscap, the UK’s leading independent finance provider.

In the first quarter of 2010 HMRC rejected 11.2% of all “time to pay” applications that related to VAT compared to just 5.3% of applications that related to VAT in Q1 2009*.

“Time to pay” is designed to allow viable businesses to defer tax payments during the recession.

The figures obtained by Syscap under the Freedom of Information Act illustrate the increased difficulties that SMEs are having in getting HMRC to defer their demands for tax payments.

Philip White, Chief Executive of Syscap comments: “SMEs are still finding it incredibly hard to borrow money from their bank to pay HMRC VAT so news that the HMRC refusal rate has shot up is worrying.”

“GDP growth of 0.2% shows the economy is weak, not strong, and that more needs to be done to help SMEs, not less.”

Syscap explains that many creditworthy businesses are unable to pay their VAT bills because of delays by their customers in paying invoices.

According to Syscap many businesses have their VAT bill calculated from when they invoice a customer VAT and not from when they receive the money. This means they can incur a huge tax liability that might not be cleared until their customer finally feels their cash cushion is large enough to pay their bills – delays of six months or more are not uncommon.

Syscap says that it is not just small businesses that are still having problems paying their VAT bills.

Says Philip White: “We get requests from businesses that are, on all sensible measures, the best credit risks available looking for VAT funding - from Top 100 commercial law firms through to veterinary practices.”

HMRC recently introduced (April 6) a requirement for all “time to pay” requests worth more than £1million to be supported by an “Independent Business Review” of that business. The review must be paid for by the business applying under “time to pay” and HMRC have admitted the average cost of an IBR would be £42,000.

Adds Philip White: “Whilst HMRC say there is no change in policy over granting credit for VAT payments it does seem they are enforcing existing policy in a way that has increased the number of refusals quite dramatically.”

* HMRC’s methodology for reporting “time to pay”/Business Payment Support Service decisions means HMRC have placed some of their pre- Q1 09 decisions into Q1 09.

See coverage of this press release below:

The Independent

Accountancy Age

Brookson