Tough approach from HMRC signals insolvency risk

The financial crisis has already pushed hundreds of companies into administration as intense pressure on cashflow highlighted any weaknesses within businesses. But as confidence gradually returns, it had been thought that the insolvency rate would continue to drop off, however, a new approach from HM Revenue & Customs (HMRC) could see things take another turn for the worse.

HMRC has announced an overhaul of its Real Time Information (RTI) approach to tax collection. The service is now asking employers to send in monthly details of how much each employee has been paid and how much tax has been deducted under the PAYE system, marking a change from the previous practice of sending information in once a year.

The problem with this approach is that it prevents companies from spreading out their payments, stopping them from balancing their cashflow. Keith Steven, of insolvency firm KSA Group, explained to the Telegraph: “We're aware of many companies that don't tell HMRC what their PAYE deductions are, or that falsify them. They say, 'OK, it's £50,000 this month, let's say it's £10,000'. They come clean at the end of the year and then ask for time to pay the tax. RTI could highlight a lot of cashflow issues.”

Julie Palmer, partner at insolvency experts Begbies Traynor, added that given the current economic climate, a lot of businesses are already feeling the strain. The potential for HMRC to issue quicker demands for additional tax payment could “potentially push them over the edge”.

As ever, people looking to buy distressed businesses could well find opportunity in the chaos if they are able to turnaround and consolidate any companies that find themselves struggling with cashflow issues when the taxman comes knocking.

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