The number of law firms that need funding to help pay their January tax bill has jumped by almost 60% since last year, according to a business providing independent finance.
Syscap reports that so far this year it has received 410 requests from law firms for funding to help meet their tax bill due on 31 January, up by 58% from 260 requests in the same period last year.
The organisation says it has seen a higher proportion of requests for loans below £1m as small and medium-sized firms’ need for funding continues to grow.
On 31 January, partner-owned law firms will have to make a payment on account of half of their previous year’s tax bill. As well as paying the January tax bill, which is related to the partners’ profits, firms will have to pay a VAT bill for the quarter ending 31 December 2012, which, says Syscap, will create an additional burden on cash resources.
Chief executive Philip White said: ‘HM Revenue & Customs 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 downturn law firms were able to use the HMRC’s ‘Time to Pay’ process to defer tax payments, but that scheme has been winding down.
White said: ‘Even hugely profitable law 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 law firms for a simple funding product to cover tax payments and protect precious cash and working capital.’
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.
Syscap suggests that the number of instances where HMRC had used its powers to seize assets rose by 92% to 10,577 times in the year ending March 2012 from 5,520 in the year to the end of March 2011.
‘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 law firms get into difficulties just because they have unpredictable cash flows,’ added White.