Worries over business survivals if tax payment scheme closes

A significant number of businesses could face severe financial trouble were the government's time to pay scheme to be wound up.

The warning has come from insolvency experts.

The Business Payment Support Service (BPSS) was set up by the Chancellor to allow businesses with cashflow difficulties to negotiate a timetable for settling PAYE, corporation and income tax bills. It was extended by Alistair Darling in his pre-Budget Report.

So far some 160,000 businesses, employing 1.2 million people, have used the time to pay scheme, deferring payment of £4.8 billion in taxes. Of that figure, £3.69 billion has already been repaid.

However, insolvency analysts have suggested that any premature closure of the scheme could push many businesses under.

Business failures dropped during the last quarter of 2009, down by 1.7 per cent compared with the previous quarter, and 1.1 per cent down on the same period a year ago.

But the fear is that the withdrawal of the BPSS could herald a surge of firms forced into liquidation as they struggle to pay their deferred tax demands.

In response, the government has said that the scheme has been directed at viable businesses with temporary cashflow problems. Most, the government believes, will survive.

The government has also indicated there will be no sudden closure of the scheme.

A Treasury spokesman said: "The 'time to pay' scheme has been hugely beneficial for businesses facing difficulties and will continue to run as long as necessary. Any suggestion that it will end suddenly and businesses forced to repay is incorrect and runs counter to what the scheme was set up to achieve."