In line with the economic realities of the recession, the 2011–12 tax year saw the number of petitions to liquidate companies with outstanding tax bills rise by 57% on the previous year.
What is more concerning however is the evidence that suggests that HMRC is adopting a less tolerant stance towards late tax payments, which has potentially serious repercussions for SMEs struggling with cash-flow problems. For instance, HMRC has reported a doubling of the use of distraint, the process of seizing a company’s assets to be re-sold in 5 days if tax is not paid. In addition, accountants complain that applications for lenience on tax payments for struggling companies, under the Time to Pay scheme, are now more likely to be rejected.
Some argue that this strict attitude is necessary to weed out the so-called ‘zombie companies’ (companies that require constant bailouts to operate) that are hindering the recovery of a competitive economic environment. The danger is that the SMEs with the potential to grow into tomorrow’s large tax-paying corporations may be thrown out with the bathwater.