Platforms warned over HMRC arrangements
Paul Smith, managing director in Duff & Phelps’ Manchester office, and part of the global restructuring advisory practice, explains the secrets to dealing with HMRC…
Lenders and business owners should act now to avoid tax challenges amid a surge of forbearance measures.
Paul Smith, managing director in Duff & Phelps’ Manchester office, and part of the firm’s global restructuring advisory practice, has warned that some small- and medium-sized enterprises (SMEs) are likely experiencing a false sense of liquidity that may end once HMRC stops offering payment breaks.
“I would say there’s a false sense of liquidity in certain businesses and that when they actually look to balance the books, there could well be a gap,” says Smith. “These businesses will realise that they haven’t made loan payments to the bank, they haven’t paid rent to their landlords, and there’s also so much uncertainty about the government support that’s been provided.”
Smith has been on the front lines of the SME response to the Covid-19 crisis since the start.
Initially, Duff & Phelps was focused on a stabilisation exercise with many of its clients. This involved reaching out to key stakeholders and creditors and seeking forbearance from HMRC.
“In many cases, we’ve been able to agree deferrals of tax liabilities for a number of months, so that is one less thing for people to worry about,” says Smith. “We’ve also worked with businesses to negotiate with landlords, suppliers and lenders where repayment holidays were needed.”
The next phase for Duff & Phelps was to take a new look at these businesses and figure out what they need to move forward. “We look to put in place realistic, robust plans that the business can adhere to going forward, because the last thing we want to do with any stakeholder is reach an agreement then renege on it because that isn’t good for the client,” says Smith. “We’ve been providing options analysis and guiding clients through it all.”
Duff & Phelps has seen the average amount of HMRC debt among its clients increase during the Covid-19 period. In order to help its SME clients manage this debt, Duff & Phelps has been working closely with HMRC, leveraging its lengthy experience and strong relationship with the tax office.
“We have a strong relationship with HMRC at all levels,” says Smith. “We understand the enforcement process, how debts are collected by HMRC and more importantly, we know what a solid proposal looks like.
“We pride ourselves not only on the number of arrangements that we actually get through and the length of those arrangements, but also the number of jobs that we have helped safeguard.
“That’s the metric by which we measure ourselves.”
Since the pandemic began, Duff & Phelps’ tax arrears solutions team has saved approximately 2,000 jobs. By comparison, for the whole of 2019, the team safeguarded approximately 1,700 jobs.
“We have the relationship with the lenders, the landlords and the asset providers,” says Smith. “We can effectively marshal and bring together the restructuring plan.”
This involves arranging longer repayment terms with HMRC via Time-To-Pay arrangements, and galvanising stakeholder support, as well as offering advice and even an equity match service for its SME clients.
Seven months into the pandemic and with no end in sight to the economic turmoil, SMEs and lenders would do well to heed Smith’s advice and bring in the experts now, to save money and jobs in the future.