Britain’s complex tax system has sparked a double-digit jump in businesses collapsing because of their debts to HM Revenues & Customs, according to a report yesterday.
HMRC is now the largest single creditor in two-thirds of cases where a business has been liquidated, a Freedom of Information (FoI) request has unearthed.
The tax authority was the main creditor in 1,920 (65 per cent) of the 2,955 compulsory liquidations in the last full financial year – an 11 per cent rise on an HMRC share of 54 per cent five years ago.
It comes as a separate report out today shows that UK businesses owe £4.4 billion in overdue corporation tax and VAT as they struggle to find cash to pay.
Andy Wood, technical director of Enterprise Tax Consultants, which put in the FoI request, said the Insolvency Service data showed firms were struggling with an increasingly complex tax code.
This was despite data showing businesses going bust have fallen by more than 40 per cent since 2012.
Wood said: “Some might be tempted to view the numbers as positive in that they demonstrate a significant drop in the number of compulsory liquidations but the figures become significantly less so when one considers debts owing to HMRC.
“It’s not just the increasing frequency with which the HMRC is named as either one of many creditors or, in fact, the principal creditor, but the sums owed. The total amount claimed by HMRC has risen by almost 50 per cent in the last year alone.”
He said that even if one allowed for small numbers of businesses with large tax debts to colour the overall picture, “the median average has increased by half in the last five years”.
Wood added: “I believe that is a real cause for concern and tallies with accounts from companies to which we’ve spoken, many of which describe difficulties in grappling with an ever-longer tax code.
“For smaller companies, in particular, which are unable to afford to appoint someone specialising in company finances, it can be a real strain and actually detract from their ability to get on with doing whatever they were established to do.”
The amount owed to the taxman jumped 47 per cent to £830 million in the 2016/17 tax year compared with the previous financial year.
An HMRC spokesman said: “The fluctuation in insolvencies is not due to any single cause but a range of factors.
“HMRC will always offer practical support to viable businesses and there are over 1.5 million time-to-pay arrangements in place at this time supporting British business.”
Meanwhile, today’s separate report from Funding Options, the online business finance supermarket, said UK firms currently owe £1.89bn in corporation tax and a further £2.5bn in VAT.