Businesses 'abusing Time to Pay tax scheme'

More than 200,000 companies have signed up for the programme since its launch in 2008 to allow them to defer an estimated 5bn in tax payments.

R3, the association of business recovery professionals, said Time to Pay helped the country through the recession, but raised concerns about its exploitation.

Andy Wood, Yorkshire chairman of R3, said: "If you have a good core business and if it's a matter of buying six months while you try and work your way through it is a great idea in principle. But it has been abused."

He added: "I had a director say to me 'of course I was going to use that. I had a personal guarantee, I needed to get the bank (debt] down'. I don't think he was even worried about the taxman. It got him out of the hole.

"The issue was that it wasn't being monitored latterly. Many accountants said to me all they had to do was phone up and say 'I have got a client who can't pay his VAT, can we have some type of arrears' and it was done on a phone call. No 'can we have cash flows or profit forecasts'.

"Occasionally I'm told HMRC would phone the company to chat to the actual owner of the business, but not always. It was bound to be abused to an extent."

Mr Wood questioned government claims that it would be able to collect 90 per cent of the arrears and said he would be surprised if it managed 75 per cent, resulting in significant losses for the taxpayer.

A spokesman for HMRC said each case is judged on its own merits with officials responsible for their own decisions.

He added: "If companies do fall by the wayside, we would move fairly quickly to draw a line in the sand which means we would look at insolvency or winding up petitions. If we did not do that, we could be held accountable by the people who are paying tax up front and paying when monies are due."

Mr Wood made the comments in an interview with the Yorkshire Post to mark the end of his two year term as chairman of R3.

The insolvency practitioner, a partner at the P&A Partnership in Sheffield, expressed concern that banks are demanding more personal guarantees from directors in comparison to the last recession.

He said: "What concerns me is that having seen the fall in asset values in some companies, directors are being approached and asked to give personal guarantees to cover the increase in exposure to the bank that has been caused by the world issue rather than an individual issue.

"In the majority of cases the banks are trying to take a longer view and where there is a good core business they are trying to support it. But it does concern me there are some people being asked to sign away their houses and all sorts to move forward."

As banks introduce centralised risk assessments for lending decisions, businesses which have been artificially maintained will fail as support is withdrawn, Mr Wood said.

He said lenders do not have an appetite to support businesses where an increased facility would be simply used to pay off arrears in Crown debt or to meet increased wage settlements where demand for goods and services remains weak.

The outcome of this will be an increase in business failures over the next 12-15 months and a rise in unemployment from 2.5 million to up to three million.

He described the evolution of strong lending criteria as "a necessary evil" to ensure that funding is only available to those with strong business plans and leadership.

R3 has more than 250 members in the region, including accountants, solicitors and insolvency practitioners.