The financial pressure on cash strapped SMEs is set to intensify with HMRC adopting a more aggressive policy on debt collection and the Government potentially ending the 'Time to Pay' tax deferral scheme next week.
The Forum of Private Business (FPB) has warned that thousands of SMEs may be forced into administration if 'Time to Pay', launched in 2008 by the previous administration, is one of the victims in the coalition's Emergency Budget.
"The Business Payment Support Scheme remains a real lifeline for many small firms struggling with cash flow and this will be the case for a while. Now is not the time for it to go," said Jane Bennett, head of campaigns at the FPB.
The scheme has so far helped to improve the cash flow of 200,000 businesses hit by the recession, pushing back tax payments in the region of £5bn, FPB claimed.
"Rebalancing the economy is clearly a major priority but sacrificing genuine support like this will only jeopardise small businesses and hinder sustained recovery," added Bennett.
According to accountancy software firm Accountz, HMRC is going to get very aggressive with firms as it tries to claw back £16.1bn in unpaid taxes.
"The increased target has been set after pressure from the Liberal Democrats who believe some businesses are escaping their full tax responsibility," said Quentin Pain, founder at the vendor.
He argued HMRC have been "forced to come down hard on tax avoidance and evasion".
As part of its efforts to clamp down on lost taxes, HMRC is piloting a scheme with the private sector to effectively outsource work to debt collection agencies (DCA).
"The agencies will take some debts across a range of taxes covering both businesses and individuals. The agencies will be involved in 'resolution' work only, and will not do any home or face to face visits or litigation work as part of the pilot," said HMRC is a statement.
Eddie Pacey, EMEA director of credit services at Bell Microproducts, said that before the changes to insolvency rules, HMRC had been responsible for the highest proportion of businesses failures by winding up firms that had outstanding taxes.
The eagerness to formally wind up firms diminished when HMRC took its place in the queue alongside other unsecured creditors, he added but was concerned that the situation could deteriorate should DCAs get beyond the pilot stage.
"My concern now is that DCAs successful in winning HMRC tenders may be tempted to adopt strong arm collection action," he said.
"Should this happen, I suspect the number of formal business closures will far exceed those historical HMRC levels," Pacey added.
Research published by Syscap earlier this month revealed that the number of directors of insolvent businesses facing disqualification for failing to pay their firm's tax obligations had soared by 24% in fiscal 2010.
Although company insolvencies dropped 17.8% in the period, 813 directors had cases brought against them up from 654 in the previous year, despite the 'Time to Pay' initiative.
"These figures are a wake up call for directors of companies encountering cash flow difficulties," said Syscap chief executive Philip White.
"On the one hand HMRC [has been] allowing companies to defer tax, but with the other it is taking an increasingly aggressive stance towards individual directors who fail to meet their obligations to the taxman," he added.