An independent finance provider has reported a surge in the number of law firms seeking funds for their VAT bills following HMRC’s decision to wind up its “Time to Pay” scheme.
Syscap, which provides funding and financial advice to companies, says requests from law firms specifically related to funding for VAT bills doubled in the first quarter of 2011 compared to the same period last year, reaching 166. It attributes the rise to the fact HMRC has started to reject more Time to Pay tax deferral applications, and says it anticipates a further rise in funding requests as the impact of the increase in VAT to 20% in January takes full effect.
The scheme was a popular government initiative to allow viable businesses to defer tax payments during the economic downturn.
However, over the past 12 months, the number of scheme arrangements agreed by HMRC has fallen 43% from 57,800 to 32,900 in the first quarters of 2010 and 2011. In the same period, the number of rejected applicants rose by 50%.
Payment terms are becoming more stringent, Syscap reports, with businesses being offered shorter payment plans. Nearly two-thirds are now for three months or less. Businesses are sometimes being asked to apply for a bank loan or make a tax payment with a credit card before becoming eligible for the scheme.
Philip White, chief executive of Syscap, says: “Solicitors firms have been a heavy user of the Time to Pay scheme, and it is worrying that these figures show that HMRC is winding it down at a time when the legal profession is clearly still struggling. We may not technically be in recession, but if you look at the six month trend, growth is flat-lining."
