7 June 2010

Sharp rise despite HMRC allowing businesses to defer tax

The number of Directors of insolvent companies facing disqualification proceedings for failing to pay their company’s tax has jumped by 24% in the last year (year ending 31 March 2010), according to figures obtained by Syscap, a leading independent finance provider.

813 Directors had proceedings brought against them in court for non-payment of company tax in the year ending 31 March 2010, compared to 654 in the previous year.

Separate figures from the Insolvency Service show that the number of company insolvencies declined by 17.8% over the same period.

Disqualification orders ban individuals from being Directors of a limited company or from being involved in the promotion, formation or management of a company for up to 15 years. Directors that have been disqualified have unlimited liability for the losses of any company that they have been involved with in contravention of the disqualification order and may also be criminally liable.

According to Syscap, these figures show that despite HM Revenue & Customs (HMRC) taking a less aggressive approach to collecting tax from distressed businesses, HMRC is increasingly prepared to instruct the Insolvency Service to take individual Directors to court for failing to meet their companies’ tax obligations.

Philip White, Chief Executive of Syscap, comments: “This is a huge increase in court proceedings against Directors. It’s all the more shocking because the number of company insolvencies has declined sharply over the last year.”

“These figures are a wake up call for Directors of companies encountering cashflow difficulties. On the one hand HMRC is allowing companies to defer tax, but with the other it is taking an increasingly aggressive stance towards individual Directors who fail to meet their obligations to the taxman.”

He adds: “Directors often choose to pay suppliers over HMRC in the belief that this will ensure the immediate survival of their businesses. Continuing to trade while neglecting to pay HMRC is a risky strategy that could backfire if the company subsequently becomes insolvent.”

Syscap points out that HMRC is rejecting a higher proportion of applications for its ‘Time to Pay’ scheme and is scaling back the amount of tax it is prepared to allow businesses to defer. ‘Time to Pay’ was established during the recession to allow viable, creditworthy businesses to defer tax payments.

Syscap says that businesses unable to meet their tax obligations and who are not eligible for ‘Time to Pay’ can still obtain credit to pay their tax from funders.

Philip White says: “With HMRC making it harder for businesses to defer tax under ‘Time to Pay’ and the Government under intense pressure to maximise tax receipts, we may well see even more prosecutions of Directors for failing to meet company tax obligations in the coming year.”

See coverage of this press release below:

Reuters

The Independent