30 November 2010
HM Revenue & Customs (HMRC) is pushing struggling businesses to pay tax on credit card at an extortionate rate of interest rather than allowing them to defer their tax under its ‘Time to Pay’ scheme.
According to our research, many businesses are being left with five figure credit card bills as a consequence.
HMRC is also charging businesses an additional 1.25% fee for paying tax on credit card. The average annual interest rate for credit cards is 18.8%.
‘Time to Pay’ was set up during the credit crunch to allow businesses to defer tax payments.
The value of ‘Time to Pay’ deferments granted by HMRC has almost halved over the last year (down 45%) from £830m in Q3 2009 to just £460m in Q3 2010.
HMRC is increasingly demanding that businesses make tax payments using credit cards instead of being allowed to use the Time to Pay scheme. Businesses that use their credit card to pay tax get hit with an additional 1.25% charge on the payment from HMRC.
Roy Maugham, tax partner in our London office says: “HMRC have been taking a much tougher stance on Time-to-Pay arrangements. It is increasingly insisting that businesses pay tax on credit card first before it will consider letting them use Time to Pay. Businesses could be looking at five figure credit card bills.”
“Credit card payments are an expensive way to pay a tax bill. If a business is struggling for cashflow, the last thing it needs is a credit card bill.”
“Paying tax on credit card will simply compound the problems many small businesses are grappling with.”
“HMRC is one of the biggest payment processors in the UK. Why they feel the need to pay credit card companies such a high fee and pass this on to taxpayers is baffling.”
“HMRC should be more sensitive to the cashflow problems many businesses are facing and allow six months grace so that they can pay tax on credit card without incurring additional costs.”
HMRC have confirmed that they are likely to refuse Time to Pay arrangements where dividends are being paid to shareholders or directors or where there is what may be viewed as “excessive” remuneration within a company. More detailed questions are being asked of prospective applicants to the scheme, and for arrangements on larger amounts formal reports are now required (an Internal Business Review).
Comments Roy: “HMRC seems to have reverted to its pre-recession attitude in the way it deals with struggling businesses. Many businesses are still experiencing cashflow problems, which will be exacerbated by the VAT rise in January. Public sector cuts will add to the woes of many businesses, yet HMRC seems to be oblivious to all this.”
“If businesses are worried that they may not have the cash to pay their tax bill, they can no longer rely on HMRC being flexible – they need to make alternative arrangements as Time to Pay is becoming harder to access. HMRC’s attitude is that businesses should obtain as much credit as they possibly can commercially before it will even consider giving an inch on tax deadlines.”
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