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Insolvency experts Robson Scott raise fears over tax grab powers

Business recovery specialists in the North East are to lobby HMRC over proposed cash grab powers that could see companies forced into insolvency.

Insolvency practitioners at Robson Scott, which has offices in Darlington and Gosforth, say the threat to smaller businesses in particular could be serious as the taxman seeks to recoup arrears from cash that has been earmarked for wages or rent.

Under new proposals due to come into force in 12 months time, HMRC will be allowed to dip into business bank accounts to take any tax that is owed without a court order or issuing formal proceedings.

As long as reminders chasing arrears of over £1,000 have been sent, HMRC will be able to take the money directly to settle debts, leaving behind a minimum balance of £5,000 in the account.

The same will apply to individuals who owe personal tax.

Eamonn Wall, managing director of Robson Scott, said: “These proposals, which were announced in the Budget small print, could have a devastating effect on businesses. The majority of the cash held by small to medium size businesses is working capital for immediate to three months call, such as payment of staff wages, rent, stock purchase.

“Bar the usual reminders for repayment of tax arrears, the first they might know would be when bank balances are checked and they realise the money has been taken.

“It’s not difficult to see how the unanticipated removal of cash could quite quickly force the demise of a business that may otherwise have been able to reverse a temporary cashflow glitch. It is likely to be the spark that lights a full blown insolvency.”

HMRC will be required to inform an individual or business after the money has been taken. They will then have 14 days to negotiate a settlement plan with HMRC. If this cannot be agreed, HMRC will be entitled to keep the money; if a plan is agreed, part or all of the money could be returned.

Eamonn said the new system would help HMRC recover some loss of income suffered following insolvency reform 12 years ago. The changes ended the Inland Revenue’s preferential status giving it priority over assets in liquidations, administrations and bankruptcies.

It has been estimated the new system could see HMRC realise a further £65 million in tax receipts in the first year alone.

Eamonn added: “Without doubt any increase in UK Plc’s income is welcome news. However, the manner of the proposed tax grab could end up creating more problems than it solves.

“We’re concerned that HMRC will not have to go through formal procedures before taking the money.

“They are aware of when businesses pay salaries, or in the case of an individual taxpayer when they get paid. Just prior to this date is generally when a business holds its highest monthly cash level. If HMRC planned its cash raid to coincide with the salary cycle potentially thousands of employees could be left without wages.

“We intend to raise our concerns with HMRC. Without a court application, or some other form of independent ‘check and balance’ on HMRC’s decision making, there is a real risk that the tool could become used as the ‘gun to the head’ in settling disputes.”

This was posted in Bdaily's Members' News section by Sarah French .