£3.1bn in deferred tax payments is a ‘time bomb’

Author: By Simon Evans

But industry figures have warned that the deferrals have placed a time bomb
under the UK economy that would likely explode in the autumn.

Officials from Revenue and Customs said that 172,000 small and medium sizes
companies were now shelving payments of VAT and PAYE until their fortunes
improve.

At the end of May, the Revenue’s so-called time-to-pay arrangements saw
businesses put off a bill of £2.4bn.

According to the Revenue, around 60 per cent of the current outstanding bill
has been shelved on a three-month basis. The Revenue has allowed around
22,000 firms to continue with deferrals after initial agreements have come
to an end, it said.

“We won’t simply let companies continue to defer,” said a spokesman. “They
have to prove to us that they are doing all they can to improve their
businesses in an effort to pay us back.”

The relaxed line taken by the Revenue on VAT payments has been cited as one of
the major reasons behind the lower than expected level of company failures
in Britain in 2009.

So far, official figures show that less than 2,000 firms have gone to the wall
in Britain this year, making a mockery of earlier predictions of an
insolvency epidemic in 2009.

But credit insurers, which play a large role in the small and medium sized
business in Britain, are preparing themselves for a “torrid autumn and
winter”, one leading player said.

“We know it’s coming,” he said. “The amount of money being
deferred by the taxman at the moment is staggering and is only putting off
the inevitable. Britain’s economy will be on the end of a large number of
insolvencies in the autumn. The current figures just mask the problem.”

The £3.1bn owed by companies is part of a £22bn hole in the Government’s
coffers in the wake of the credit crunch.

A £5bn reduction in corporation tax receipts from the troubled financial
sector and a £6.1bn drop in stamp duty payments to the Exchequer, triggered
by the collapse in the housing market, have also contributed to the shrunken
government purse.

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