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Over 60,000 companies have agreed 'time to pay' tax arrangements with HMRC but this could be storing up disaster, as deferring payments to HMRC does not mean the debt has gone away.

According to Steve Clancy, a partner at MCR Tax Arrears Solutions, the Government's new initiative, which allows companies struggling with debt to pay back tax over a longer period, is just putting off the bigger problems.

The firm estimates that the ‘time to pay’ arrangements already total more than £1bn. Also, according to a recent news release from HMRC. A potential problem with the initiative, says Clancy, is that many agreements are reached on the strength of a telephone discussion. An assessment has not been made by a specialist to demonstrate a business’s future viability and their ability to repay its debts.

MCR Tax Arrears Solutions says often companies then end up with unrealistic short term agreements which serve little purpose and need to be renegotiated.

Clancy says: "Deferring the payment of tax can therefore simply mean the deferment of a problem. Yes valuable time can be secured to put restructuring measures in place. However not all companies are taking advantage of this time to put their own houses in order and to focus attention on driving revenue streams."

He explains that business owners also need to be aware that even with the introduction of deferred tax payments, all tax liabilities will still need to be paid albeit over longer and more manageable timescale in addition to meeting all current and ongoing obligations as and when they fall due.

"Our concern is that with 60,000 firms already taking advantage of this scheme it could mean that as the economy continues to struggle, cashflow remains tight, but that tax liability will not have gone away," says Clancy.

If you have had tax problems, the Government's help is welcome, but your tax burden is only part of the problem. Talk to a financial adviser about your other debts and the real reason why you cannot keep up with all your repayments.

SOURCE: MCR Tax Arrears Solutions, 01/06/09

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