Time-to-pay gives companies experiencing cash flow problems the chance delay their tax liabilities. But there are fears that the government has plans to end the scheme, leaving many SMEs in the deep end. Here we speak to businesses and experts about the importance of tax deferrals.

Geoffrey Rogers, chartered accountant and tax consultant, has used the time-to-pay scheme to defer his VAT payments on two separate occasions due to clients defaulting on debts and paying late.

‘I used it last autumn for my £7,500 quarterly VAT bill, which I arranged to pay over a period of three months. VAT and payroll take the most out of turnover.

However Rogers found that on the third occasion HMRC was less willing to help: ‘My cash flow situation is close to resolving itself now. This time I only needed to spread payments over three weeks rather than three months. The process can take time, it’s a bit like turning around an oil tanker.

Rogers believes that HMRC is becoming more stringent. ‘It seems that HMRC are now refusing help to people who are returning to the scheme,’ he says.

Calling time

Tracy Ewen, managing director of commercial finance company IGF, agrees that over the last six months HMRC has been making it harder for applicants to access the scheme. ‘They appear to be asking for much more information including cash flow statements, management accounts and forecasts of profit and loss,’ she says.

Kathryn Hiddleston a restructuring tax partner at Grant Thornton, says that tax officials should take a ‘commercial view’ and realise that helping businesses stay afloat will yield more tax revenues in the long run. ‘What happened in April 2010 was that HMRC said, “We’re not a bank, we can’t afford this,”’ she adds.

There are also fears for the future of the scheme, with lobby groups such as the Forum of Small Businesses calling on the government not to wind it down in its emergency budget this month.

Rogers believes this would be disastrous. He says a mixture of draconian tax rules from HMRC and massive bank charges would leave many SMEs struggling. ‘If they wind it down, there will have to be an alternative arrangement.

‘At the moment suppliers want paying immediately, customers are slower to pay and the banks are not lending. I know HMRC don’t want to offer rolling credit, but that’s not what we’re asking for. It’s not something people use lightly.’

But Mike Benson, tax expert at chartered accountants Murray Smith, is doubtful that the government will end the scheme completely. ‘It’s more likely that the budget will focus on restricting public sector spending and increase taxes on non-business related areas,’ he says.

And for Benson there’s nothing to stop businesses from signing up still, despite uncertainty about the scheme’s future. ‘Now is still a good time, as once you’ve agreed instalments its very unlikely that the government will get rid of [the payback schedule].’