Businesses seek loans as taxman gets tough

  • Anil Kanda
  • 30 Apr, 2015

A rise in the number of winding up orders could indicate that HMRC is taking a tougher line with debtors.

Figures from the Insolvency Service released this week show that the number of compulsory liquidations rose by nine per cent to 904 in the first quarter of the year, despite a fall in the overall number of business insolvencies.

The rise corresponds with an increase in the number of enquiries to Ashley Business Finance from firms seeking finance to pay off outstanding tax bills.

The Insolvency Service figures show there were 3,751 compulsory liquidations in 2014, up from 3,640 the previous year. The highest numbers were in construction (578), retail and wholesale (287), and hospitality (212).

Jonathan Cranston, chair of Ashley Business Finance, said: “It’s not surprising that these sectors are the worst affected as they contain many small businesses which employ a lot of staff. They have to keep paying wages but, as trade may be seasonal or they may have to wait long periods for payment, they suffer cashflow problems and can’t pay the PAYE and VAT.

“In our experience HMRC can be very slow to chase outstanding money so companies may be lulled into a false sense of security. Often they prioritise other debts and, over the course of a couple of quarters, may end up owing large amounts which they can’t hope to clear in one go.

“When HMRC does start to chase them, it’s like a crocodile coming out of the water. Businesses in this situation have few options, particularly now HMRC’s Time to Pay scheme has been discontinued.  Banks will refuse to lend and may even close their account if they discover there is tax outstanding.”

Ashley Business Finance is one of the few finance providers to offer funding for outstanding tax bills. Jonathan Cranston said the company assessed each case on its merits: “Borrowing to pay tax bills isn’t appropriate for every business – for some, the best solution may be to call in insolvency practitioners.

“However where the underlying business is profitable and the debts are the result of temporary problems or a one-off situation, accessing additional finance can give a struggling company a second chance.”