Tax debt rises by 6% as small businesses struggle to pay bills on time

Tax debt rises by 6% as small businesses struggle to pay bills on time

New figures published today by HMRC today reveal that the amount of tax owed to the Exchequer but remaining unpaid reached £44.5bn as of 30 June 2023, a 6 per cent rise versus the same date last year.

According to HMRC, the majority of this tax debt is owed by small and medium-sized businesses, many of which appear to be suffering cashflow challenges as inflationary pressures bite.

While HMRC’s figures suggest that there has been little change in the proportion of taxpayers filing their returns and declaring their liabilities on time, there has been a reduction in the numbers of customers paying on time.

Indeed, there were 892,673 taxpayers in Time to Pay (TTP) arrangements at the end of June 2023, a 5% rise versus the same time last year, although this was down slightly on the 912,233 taxpayers recorded at the end of March 2023.  

These cashflow challenges are also being reflected in business failure rates. The latest insolvency statistics for the quarter ending June 30 2023 revealed the highest total number of company insolvencies in almost 14 years.

Today’s performance figures also show that HMRC is opening a higher number of civil compliance checks against taxpayers. In total, there were 77,000 new checks opened in Q1 of 2023-24, a 28% year-on-year rise, as the tax authority seeks to step up its compliance work post-pandemic.

Dawn Register, Head of Tax Dispute Resolution at accountancy and business advisory firm BDO said:

“Today’s figures paint a pretty bleak picture of the challenges facing small businesses in the current economic climate. Those businesses that are struggling to pay on time also face the prospect of having to pay higher rates of interest for late payments. Late payment interest is currently at a 15-year high of 7.5% and this is set to rise even further following today’s decision by the Bank of England to raise base rates.

“HMRC has recently made it easier for taxpayers with income tax, PAYE and VAT debts to set up Time to Pay arrangements using self-service online tools. HMRC could look to extend this even further to include corporation tax debts. It may also be wise to increase the monetary limits for those seeking to arrange TTP arrangements themselves.

“However, HMRC also needs to get to grips with those taxpayers who can pay but aren’t paying. There has been investment in new debt management resources, but there is a huge job to do for HMRC to get on top of this problem.

“Today’s performance update also shows there’s been a notable rise in the number of tax enquiries that HMRC opened in the first quarter. HMRC has been under significant pressure to step up its compliance work in recent months, and this may indicate the start of a determined effort to ensure that businesses and individuals pay the right amount of tax.”

ENDS

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