Factoring Articles

HMRC Puts Businesses at Risk: Can Invoice Finance Help?

Insolvency experts predicted an increase in company failures early in 2011, and evidence is emerging that HMRC is adopting a tougher line on voluntary agreements and outstanding debts.

The indicators in London pointing towards more businesses at risk, the number of firms seeking company voluntary arrangements would increase in the coming months.

A CVA is like a legal ‘time to pay’ arrangement to give the company a breathing space. Banks tend to like them because they should end up with a better return for creditors. It’s a means of saving the company, not punishing the directors.

In the past, HMRC appeared to be a great supporter of CVAs. Recently, however the department has been rejecting CVA proposals that would have approved in the past.

HMRC’s objective is to maximize early repayment contributions for clearing VAT and PAYE arrears rather than accepting those that propose a realistic repayment schedule with lower early repayments.

What’s more, the tax department’s treatment of outstanding debts is likely to get tougher in a plan to outsource collection, and it is tightening its stance on Time to Pay arrangements and CVAs.

This means that invoice discounting would be able to provide UK businesses with one of the few resources available to help them deal with overdue taxes before HMRC gets aggressive.

Today, there are newer more flexible types of factoring including single invoice factoring and spot factoring – which provide flexible alternatives. These are also non-contractual, so tax liabilities can be dealt with without the need to commit to long term invoice discounting.

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