Time To Pay Arrangements Can Do More Harm Than Good
According to the most recent figures available, around 200,000 businesses have entered Time To Pay (TTP) agreements with the HM Revenue & Customs (HMRC) in the past 18 months, deferring over £5bn in taxes.
TTP arrangements allow businesses that are unable to pay taxes on their due dates to make monthly payment over a period they can afford, usually less than a year.
Although the scheme has created a lifeline for struggling companies and softened the impact of the recession, it has also produced a situation where tens of thousands of British businesses – that would have otherwise been regarded as insolvent – are being artificially sustained.
If you need time to pay your liabilities and you cannot meet your payments as they fall due, then by the definition of the Insolvency Act 1986, you are insolvent.
When companies are given more time to pay, they will be continuing to trade while insolvent; which ultimately does more harm than good. Few companies end up better off when they are in this position.
Businesses that trade while insolvent wreak havoc in the marketplace. They are terminally ill and may as well have their life support machines switched off as the longer they continue to trade, the more likely they are to increase liabilities and incur greater losses against creditors.
Only a small number of companies are able to trade their way out of insolvency; usually due to a big order, or cash injection, but they are few and far between.
Borrowing money to bad businesses is not a good idea; those who are unable to jump their financial hurdles may be responsible for bringing other businesses down with them.
That said, I can see why TTP schemes would be popular. However, businesses that fall behind on tax and debt repayments would be better off opting for a Company Voluntary Arrangement (CVA). That way, they’ll be wiping off 60-70pc of their liability in one swoop.
If your business is in financial trouble, call Insolvency and Law now for free and confidential advice on 020 7504 1300.