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Business Tax  •  Personal tax  •  Taxation

“Time to Pay” creates new lender for SMEs – with full government backing!

By Lesley Stalker on 6 August, 2009

As problems with getting access to finance continue among small firms, the controversial Business Payment Support Service (BPSS) offers a very practical solution for many short term cash flow problems.

According to some reports, over 60,000 businesses have now registered for BPSS, which was announced in the Budget. This does what it says on the tin by allowing businesses to pay off their tax slowly, in pre-agreed instalments and formalises the ability for businesses to make 'time to pay' arrangement. It exists to support businesses that need to make any type of tax payment corporation tax, PAYE, NI, VAT, and for sole traders, it also includes income tax. At the last update given in February, it was estimated that in excess of L1 billion had been deferred already.

In our experience BPSS works very well. You basically telephone HMRC and agree informally a time to pay arrangement. The ease with which this can be achieved really depends on the timeframe proposed and the quantum of payment to be deferred. Three months or less and up to £100K is very straightforward. It is a good scheme and, even if you can afford to pay straightaway, because so many companies are struggling with cash flow issues, why not use the bank of HMRC for temporary relief? You would have to pay interest on any loans anyway so why not pay it to the Revenue? Most clients would probably rather borrow from the government for three months than go to their bank managers for finance! And HMRC's interest rates are very competitive.

At the start of the article I suggested this was a controversial scheme because many have said the government is heading for disaster by having allowed so many to defer. But maybe not? Isn't it more disastrous if £1 billion plus of SME generated GDP leaves the economy for good? The BPSS scheme seems to be a way to kill the proverbial two birds and fits in with the Chancellor's overall strategy of quantitative easing. They must have realised firms would apply en masse to have the pressure of tax payments eased. If you are looking for a small amount of extra time to pay and the amount in question is pretty small, no evidence or means testing is usually required, so this is very tempting for businesses to take advantage of.

The figures show that over a quarter of firms already registered are construction related, which is not surprising given the difficulties facing this sector. More significantly, if construction firms register, they no not have their CIS registration withdrawn for tax payment failure. Our view is that the scheme is excellent, but needs to be managed carefully. Ultimately, the tax still needs to be paid, so a balance needs striking between a bit of borrowing from HMRC and quickly clearing your tax debts, and sustained over-borrowing. And while the problems concerning access to finance continue to exist, it's probably inevitable that so many firms opt to take a little while longer to pay their dues.

For more information on the BPSS contact us.

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