Partner Article

‘Time to Pay’ scheme holds back £210m of payments in region

A HM Revenue & Customs scheme aimed to help businesses experiencing cash flow problems has allowed businesses in the region to delay payments to them worth £210 million over the past 3 years.

The ‘Time to Pay’ Scheme was created in 2008 to allow companies to organise a delayed payment schedule for their PAYE, National Insurance and VAT obligations. At the end of the first quarter of 2011, 12,900 companies across the region had reached agreements with HRMC.

While numbers of companies using ‘Time to Pay’ agreements is now falling in line with expectations, there is a fear that many businesses are using the scheme to delay the inevitable by incurring further losses instead of using the time to try and save the business.

Linda Farish, chairman of the North East arm of insolvency trade body R3, and director of Recovery and Insolvency at Newcastle-based accountants RMT has seen figures suggesting that two thirds of businesses using Time to Pay agreements have not kept to the stipulated payment schedule.

Worryingly, a significant number of businesses are applying for, and getting, multiple payment delays, and some are even on their fourth referral period.

Linda Farish believes this indicates serious underlying problems.

She said: “Time to Pay should be used as breathing space for businesses undergoing a time of temporary difficulty, but a company in its third or fourth referral should act as a warning sign about its cash flow and should make HMRC question the financial viability of that business.”

There are also indications that multiple referrals could have a domino effect in the business world. One in four corporate insolvencies are caused by another business going into insolvency, rendering other companies exposed and the government forced to pick up the pieces.

She continued: “Businesses should be properly assessed at the outset to ensure that they are using the scheme appropriately and not as a long-term credit facility – and if a company is able to use the scheme for the latter reason, they are being given an unfair advantage over those businesses who meet their financial obligations in a timely manner.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .