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15/06/2011

£650 million worth of ‘Time to Pay’ arrangements are failing

Recent ‘Time to Pay’ figures show that arrangements totalling £650 million remain unpaid.

Of the £970 million still due for payment, around £320 million is on track to be paid in the future but £650 million, which equates to more than two thirds, has not been paid as initially agreed. In fact, R3, the insolvency trade body understands that some businesses are on their fourth referral period.

These figures indicate that a significant number of the businesses in Time to Pay arrangements are in financial distress and will be unable to pay their liabilities when they fall due.

R3 President Frances Coulson commented:
“Time to Pay has played a vital role in preventing the spike in corporate insolvency numbers that usually follow the end of a recession, however these figures give rise to serious concerns about the way the scheme is operating. Time to Pay should be used as breathing space for businesses undergoing a time of temporary difficulty. However, if a business is on their third or fourth referral that should act as a warning sign; it indicates that there are underlying problems with the business’ cash flow. It should make HMRC question the financial viability of that business.”

R3 members are seeing more and more insolvent businesses who had previously been in Time to Pay schemes.

Coulson continues:
“Research shows that one in four corporate insolvencies are caused by another business going into insolvency – this is known as the domino effect. This means that should the businesses who have had multiple Time to Pay arrangements fail, not only will the Government be left out of pocket, but a considerable number of businesses would be left exposed. Businesses should be properly assessed at the outset to ensure that they are using the scheme appropriately and not as a long-term credit facility.

“If a business is able to use the Time to Pay scheme as an alternative credit facility, they are being given an unfair advantage over those businesses who meet their financial obligations in a timely manner.

“The definition of insolvency is being unable to pay debts when they fall due, therefore, I would advise those businesses who are undertaking repeat Time to Pay arrangements, to seek professional advice.
ENDS


Methodology:
Lord Newby asked the following Parliamentary Question (PQ): To ask her Majesty’s Government how much money remains outstanding under the Business Payment Support Scheme.
At the end of December 2010 it is estimated that around £970 milion agreed by the Business BPSS is still due for payment.
The amount still outstanding for payment comprises two elements: amounts still due for payment in the future in accordance with agreed payment schedules (around £320 million) and amounts which have not paid as initially agreed (around £650 million).

Lord Newby asked the following Parliamentary Question (PQ): To ask her Majesty’s Government how many businesses in each of the last five years have entered into a formal insolvency procedure after been granted a Time to Pay agreement under the Business Payment Support Scheme.
The Business payment Support Scheme began in November 2008. The information requested regarding the number of businesses in each of the past five years which have entered a formal insolvency procedure after having been granted a time to pay agreement under the BPSS is not available and could only be provided at disproportionate cost.

Between the launch of the BPSS in November 2008 and the end of March 2011:

  • 28,800 arrangements were granted which were worth £7.37 billion
  • 6.31 billion has already been paid to HMRC from mature arrangements

R3 Press Office

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.