Requests from accountancy firms for funding to pay tax bills have increased by 40% over the last year says Syscap, a leading independent finance provider to the professions.

On January 31 all accountancy firms from sole practitioners through to the largest commercial firms will have to make a payment on account of half of their previous year’s tax bill.

Syscap says that this year it has seen a higher proportion of requests for loans below £1m as the need for funding amongst small and medium sized accountancy firms continues to grow.

As well as paying the January 31 tax bill, which is related to the firm’s profits, accountancy firms will also have to pay a big VAT bill by February 7th (for VAT due for the fourth quarter of 2012) – creating a huge additional burden on cash resources.

Says Philip White, CEO, of Syscap: “HMRC is under a lot of pressure to get the tax that they are owed in as quickly as possible. That means they have to put a lot of pressure on all businesses to pay their tax bill as quickly as possible.”

“At the start of the recession accountancy firms were able to use the HMRC’s “Time to Pay” process to defer tax payments that they couldn’t pay out of cash. Unfortunately that scheme has been winding down.”

“Even hugely profitable accountancy firms can find themselves short of cash – especially if customers are slow to pay. The result is we are seeing an ever increasing demand from accountancy firms for a simple funding product to cover tax payments and protect precious cash and working capital.”

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If a business does not pay its tax bill on time HMRC can impose fines, interest charges and either seize the businesses’ assets to pay the tax bill, or in extreme cases, have the business shut down. For example, HMRC shut down Rangers FC in their pursuit of an unpaid tax bill.

Recent research by Syscap found that HMRC had used its powers of distraint against businesses 10,577 times in the year ending March 2012, an increase of 92% on the 5,520 uses of distraint against businesses in the year to the end of March 2011 (distraint is the process that enables HMRC to seize assets from a business to cover unpaid tax bills).

Explains Philip White: “HMRC is collecting tax on behalf of all taxpayers so they don’t want to allow unpaid tax bills to stack up – it’s clearly a very unsatisfactory situation if otherwise healthy accountancy firms get into difficulties just because they have unpredictable cash flows.”

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