Thursday, March 18, 2010

Double dip before the election?

The taxman has thousands of businesses in a vice-like grip and may yet squeeze the life out them.

They are all in deep debt to the inland revenue – and a lot of them can’t pay.

Gordon Brown doesn’t want his own Government to march into companies large and small and close them down just before the election.

But he does need to raise as much as he possibly can in tax. Which leaves his money-gatherers in an impossible position.

It seems Her Majesty’s Revenue and Customs (HMRC) is wrestling with a massive dilemma – close down up to 12,000 West Midland companies or wait, perhaps for ever, to be repaid over £200 million they owe between them.

A year ago, on Government orders, HMRC offered its “customers” a break from paying tax and National Insurance.

For some months, all a company had to do was phone their friendly local taxman to be given a tax “holiday”.

This worked wonderfully until late last year when the Government noticed it was owed billions of pounds by businesses large and small.

And, with the Government’s own cash-flow looking dodgy, the taxman was told to tighten things up again.

Between November 2007 and December last year, the revenue approved more than 249,700 time-to-pay arrangements, worth a total of £4.37 billion.

But if you try to get more time to pay your tax bills now, you face a Spanish Inquisition from a taxman who has reverted to type and cares only about getting his hands on your money.

This is understandable. After all, as long as taxes exist, someone has to collect them so the Government can spend money on schools, hospitals, wars and repaying its own debts.

The snag is hundreds of companies are now being told that they won’t get any extra time to pay their new debts.

And companies which have already been given a tax break are being told to start repaying their old debts and keep up payments on their new ones as well.

If business has picked up and cash-flow is looking good, this shouldn’t be a problem. But for hundreds of Black Country businesses it hasn’t picked up and there isn’t enough money to repay the revenue.

So whose problem does this become – the business’s or the taxman’s?

If the revenue insist on getting all the money owing to them as soon as possible, and the businesses haven’t got it, there’s only one result – the company goes bust.

When that happens, people lose their jobs. The Government has to pay their benefits and loses the income it gets from their taxes.

At the same time, the bankrupt business has no chance of ever repaying its debts to the Government.

The taxman doesn’t get any of the repayments he’s demanding and he certainly won’t get any revenue from the company in the future because the company hasn’t got a future.

Yet the Government is owed the money and it would be wrong for HMRC simply to write off the debt. Apart from anything else, that would be unfair on other businesses which were paying their taxes.

Sadly, the revenue is like the big banks at the time of the credit crunch. As an expert in these things told me: “HMRC is now one of Britain’s biggest sub-prime lenders.”

You will remember it was “sub-prime lending” that did for the banks when they offered loans to people who never had a chance of repaying the money.

As things stand, the taxman has lent people money – by giving them a payment holiday – without checking on their ability repay it.

At the last count, I am told, there were no fewer than 12,000 companies in the West Midlands which have taken advantage of this temporary tax relief.

They only owe an average of £18,000 each, which means they’re mostly small firms with only a few employees. But it all adds up. Collectively, they owe an estimated £216 million.

Sadly, many just don’t have the money to repay the revenue.

Can HMRC really scour the region shutting down companies? It’s already responsible for half of all company bankruptcies.

Could it simply to write off the debts altogether? It would be a huge loss of revenue but it could allow the business to survive, employ people and pay taxes in the future.

That’s highly unlikely to because HMRC’s job is to gather taxes. It doesn’t have to worry about unemployment and public spending increases caused whenever people are thrown onto the dole queue.

But with so many thousands of companies in hock to the taxman, the fear now is that a new wave of bankruptcies is on the way.

The last thing Gordon Brown wants is a dip back into recession on the eve of a General Election. But unless he tells the taxman to go easy on small businesses, that’s what he might get.

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