The current “time to pay” arrangement with HM Revenue & Customs (HMRC) Business Payment Support Service has proved very useful for small and medium sized enterprises to obtain a fairly quick deferral of tax payments. In total, around 300,000 time to pay arrangements worth £5.1 billion have been agreed by HMRC since the launch of the service in November 2008 – an average of more than 4,500 per week. However, from 6 April 2010, HMRC will insist on a business supplying an independent business review in support of an application to defer liabilities in excess of £1 million.

The reason behind this change is that HMRC wants to be certain that the company applying for deferral will remain solvent and has sufficient liquidity to make the tax payments throughout the agreement period, in a similar manner to a commercial lender.

When HMRC requires an independent business review to be provided the exercise must be conducted by a qualified insolvency practitioner or an accountant. Detailed guidance on what HMRC will expect to see in such review reports is expected to be published shortly, but you can expect the requirements to provide forecast cash flow, profit and loss account and balance sheet, full details of current assets, debtors and creditors, and future trading plans.

If you would like to discuss support for a deferral application, please get in touch with your usual contact at Menzies or Richard Godmon, tax partner by email at rgodmon@menzies.co.uk.