Accountants hail increased flexibility on tax

Almost £2bn in business and personal taxes has been deferred in 110,000
separate agreements with businesses since HMRC launched its business payment
support service in November.

The idea is that by giving businesses time to pay, HMRC will ultimately
collect more tax than if it demanded payment immediately and contributed to
the rise in insolvencies.

Alistair Darling, the Chancellor, said in the Budget that officials would now
let businesses offset losses incurred this year against tax due on profits
made during 2007 and 2008.

Until now HMRC required businesses to state precisely what losses they had
suffered even though many had yet to complete their financial year or
compile accounts.

Richard Mannion, national tax director at accountants Smith & Williamson,
said the move gave HMRC more flexibility. “They are saying ‘What we can
do is be more pragmatic in giving you time to pay. If you have made a loss
you do not need to prove it’,” he said.

While this approach has meant that businesses have received help quickly, Mr
Mannion questioned whether the self-assessment approach could leave the
public purse exposed.

“If I was running these time to pay arrangements I would be asking for
more evidence. Some interim management accounts. For most amounts they are
taking the businesses’ word for it. The reality is that a lot of these
businesses are in crisis,” he said.

Many businesses have also been attracted to the low rate of interest due on
deferred tax. Corporation tax is charged at 1.75pc, while outstanding VAT,
national insurance and capital gains attracts a 2.5pc rate.

Mr Mannion said the severity of the recession in the first quarter of the year
had also taken many businesses by surprise. “In November a lot of
people were asking for three to six months [time to pay]. We are now six
months down the track and their situation has not improved and they are
asking can we change it and make it 12 months,” he said.

The Chancellor said in the Budget the service would continue “for as long
as it is needed”.

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