By Marcus Leach

New figures show that HM Revenue and Customs (HMRC) is increasingly rejecting applications to defer tax payments through the 'Time to Pay' initiative says Syscap.

The number of new 'Time to Pay' arrangements agreed by HMRC fell by 43% over the last twelve months from 57,800 in Q1 2010 to just 32,900 in Q1
2011. The combined value of the tax payments deferred fell by 40% from
£890m in Q1 2010 to just £530m in Q1 2011.

Over the same period, the proportion of applications rejected rose by 50%,
with 1,130 companies seeing their applications under the scheme rejected
each month in the first quarter of this year.

Payment terms are also becoming more stringent. In the first quarter of
2010 HMRC offered 14% of successful applicants a payment plan of ten months to a year, but only 10% of succesful applicants during the first quarter of 2011 were offered similar terms. 61% of “Time to Pay” agreements are now
for a payment schedule of just three months or less.

'Time to Pay' was designed by HMRC to allow viable businesses to defer tax payments during the downturn. It has been seen by many business organisations as one of the most effective of the programmes designed by the Government to stimulate the economy during the downturn.

The latest economic data shows that the economy grew by just 0.5% in the
three months to the end of March, just making up for ground lost in the last
quarter of 2010.

“We may not technically be in recession, but if you look at the six month trend, growth is flat-lining, so we have to cross our fingers that a double-dip recession will be avoided,” Philip White, Chief Executive of Syscap, said.

“These new figures show that HMRC is rapidly winding down the 'Time to
Pay' scheme at a time when companies are clearly still struggling.

“HMRC is being far tougher about deferring tax payments — applicants
that might previously have been successful are now being rejected.”

Philip White explains that as well as battling the sluggish economy,
companies have also been put under pressure by the increase in VAT, which
rose to 20% in January 2011 and has strained business cash-flow.

“Not only are companies faced with the rise in VAT, but unincorporated businesses such as partnerships and the self-employed also need to make sure that they have the cash available to make the six monthly tax payment due at the end of July,” he added.

“Many of these kinds of businesses are now approaching us for funding
because HMRC is making it more and more difficult to secure a tax deferral
through the “Time to Pay” scheme.”

Syscap says that their customers have reported significant changes
introduced by HMRC to the 'Time to Pay' process, including asking
businesses to apply for a bank loan or even make a tax payment with a credit
card, incurring an extra card handling charge, before they become eligible
for assistance through the scheme.

“HMRC may need to reconsider their decision to wind down the “Time to Pay” scheme. The economy remains sluggish and we have yet to feel the adverse impact of the public sector cuts, which only came into effect at the beginning of April,” White concluded.