‘Time to Pay’ squeeze could threaten vulnerable companies

WEST MIDLANDS insolvency experts fear that a squeeze on the Time to Pay scheme could be a significant threat to vulnerable businesses in the region in the coming year.

New research from insolvency body R3 found that almost a third (29%) of insolvency experts think that a squeeze of the Time To Pay facility could be the biggest threat to vulnerable Midlands businesses in 2011, closely followed by the public sector cutbacks and a modest rise in interest rates (both 23%).

The Time to Pay scheme was launched in 2008 by HMRC to allow businesses to pay their tax bills in installments or in some cases, to defer payment.

R3 Midlands Chair Matthew Hammond, a partner at PwC in the Midlands, said:  “Our members have seen how invaluable the Time To Pay scheme has been to businesses. We believe that it is important that it remains available as a breathing space for viable organisations and that it is not used as an alternative credit facility for companies needing constant bailouts in order to operate.”

The survey also revealed that almost half of R3’s members (48%) believe that the construction industry will bear the brunt of the impending public sector cuts, with a considerable reduction in spending on education and social housing.

Mr Hammond said: “There are fears that the expected increase in private sector contracts will not be enough to make up any shortfall, leaving the industry in a vulnerable position.

“The construction sector currently accounts for the greatest number of trading-related bankruptcies, so there is a worry that an increase in the number of failures in this industry will lead to a sharp rise in related personal insolvencies.

“R3 research carried out earlier this year highlighted that one third of small businesses are reliant on public sector contracts.  As a result, the fall-out from the public sector cuts will, undoubtedly, have a significant impact on the private sector in 2011.  Businesses reliant on public sector contracts should therefore attempt to diversify their income stream towards a broader customer base.”  

This R3 survey also found that half of insolvency practitioners believe that the impending VAT increase is the biggest challenge facing businesses throughout the coming year.

Matthew Hammond added: “As a percentage, the hotel and restaurant industry suffered most during the recession and many vulnerable businesses will find themselves either shouldering the extra VAT burden or suffering a further fall in consumer demand by passing the tax on.  With this as a key factor, R3 members expect the leisure retail sector to witness the greatest number of insolvencies in 2011.”