feature Accountants need help to pay tax
With banks asking Directors and Partners of professional firms to guarantee loans while reining in lending to their sector by 10 percent in the last year, accountants are the latest profession to get hit
D
emand from accountancy firms for loans to help pay their tax bills ahead of the critical January 31 tax payment deadline jumped 16 percent, says Syscap, the independent finance provider.
Syscap says that requests from accountancy firms for funding for the January 31 tax payment deadline jumped to £9.2 million, compared to £7.9 million at the same time last year. Many accountancy firms were experiencing unprecedented cashflow pressures in the run-up to the 31 January payment deadline, because it was the first time that accountancy firms, which are partnerships, had to pay the new 50p tax rate. This has eaten into working capital, and increased the need for tax funding.
On January 31 all accountancy firms, from sole practitioners through to the largest commercial firms, had to make a payment on account of half of their previous year’s tax bill (where the tax bill is more than £1,000). It is thought that banks are less prepared to lend to accountancy firms than they were a year ago. This is partly because of the increase in high profile business failures in the sector, such as Vantis (ironically, the firm that was dealing with the administration of
Smartfundit.com), which itself went into administration last June. Loans outstanding to professional services firms have fallen 10 percent to £32 billion in the last year. Syscap’s view is that banks are reducing overdrafts to accountancy firms, and are putting tighter covenant restrictions in place. Banks are increasingly asking Partners in accountancy firms to personally guarantee loans. To make matters worse, HM Revenue & Customs (“HMRC”) is less prepared to allow firms to defer tax payments under its Time to Pay scheme, than it was a year ago. What can happen if HMRC refuses a Time to Pay application? Well, HMRC then can move into a process called “distraint” where a firm’s assets can be seized and sold at public auction. HMRC admits this process can force a business to close down. HMRC can also petition to wind up an accountancy firm: one of the first steps of this process is the freezing of the firm’s bank accounts.
Philip White, Chief Executive of Syscap, says, “The increase
in VAT to 20 percent will create serious funding difficulties for accountancy firms. Firms can wait months before their clients pay invoices, so the VAT increase will hit them particularly hard. January will be a squeeze for many of these firms. “At the same time banks are tightening up their lending criteria to the sector. High profile insolvencies have had a chilling effect on lenders, making them more reluctant to extend credit to the sector and demanding more exacting criteria.
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> HMRC NOW EXPECTS ACCOUNTANCY FIRMS TO SELL NON-ESSENTIAL ASSETS TO PAY THEIR TAX
“Normally accountancy firms might just go to their bank but many outside the top tier are finding that the bank they have been with for years is no longer interested in lending at a sensible rate, or that they want to tack on huge arrangement fees even for small loans.
“HMRC has been gradually making it harder for them to access its Time to Pay scheme, which has been a vital lifeline for cash-strapped accountancy firms over the past two years. Shunned by the banks and HMRC, accountancy firms are increasingly looking for alternative sources of funding.” According to Syscap, HMRC now expects businesses, including accountancy firms, to sell non-essential assets to pay their tax. [Now what on earth could non-essential assets be in a small accountancy firm, back copies of Accountancy Week, the ten year-old photocopier, or that fresh-faced new receptionist? Ed] They go on to say that HMRC has also become more reluctant to extend credit once existing Time to Pay agreements have come to an end. ■
www.leasingworld.co.uk ■ March 2011
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