Tax timebomb threatens small firms

A law firm is urging recession stricken small firms not to 'bury their head in the sand' as a second wave of business collapses looms in the autumn, triggered by the end of the Government's six-month 'tax holiday'.

Mace and Jones said that while many exposed companies have already succumbed to the pressures of the recession, a new round is inevitable after the summer break. Official figures show that North West insolvencies dropped to 35 in June, compared to an average of 48 per month since the start of the year. The first six months of the year saw 10,242 companies enter into insolvency - up 33.8 per cent on the same period in 2008. Insolvency unit partner Graeme Jump said: "There has been a slight drop in insolvencies but this masks deep problems. A number of vulnerable businesses have been slashing costs by redundancies, operational cuts, and grabbing the Government's offer of delaying payments for such taxes as PAYE, VAT, and corporation tax.

"That six months tax-holiday already amounts to billions in delayed payments, and will soon expire, leaving many businesses exposed to urgent demands from the taxman."

Mr Jump also predicted a third-wave of business failures next year.

He said: "When the property market picks up, some lenders might decide to 'pull the rug' on ailing companies when they see the opportunity to get better prices for properties used as collateral. That third wave will also be swelled by companies that, without sufficient working capital, start to overtrade as the recovery begins. So this is the moment for companies to engage recovery advice, rather than become another statistic."