Is HMRC to blame for Scotland’s rise in corporate insolvencies?

“Many businesses continue to struggle with late payments and are continuously re-negotiating on their debts to lenders and HMRC,” – Paul Dounis, RSM 

Corporate insolvencies in Scotland have risen in the fourth quarter of 2015-16 despite personal insolvency levels falling to a 14-year low in the same financial year.
That’s according to the latest Scottish Insolvency Statistics published yesterday (Tuesday, 27 April) by Scottish Government agency the Accountant in Bankruptcy (AiB).
One of the reasons for the rise in corporate insolvencies could be that many businesses are continuing to struggle with late payments and are continuously re-negotiating on their debts to lenders and HMRC, according to audit, tax and consulting specialist RSM.
This follows a recent report suggesting that HMRC makes it easier to wind businesses up than rescue them. 
Paul Dounis, RSM restructuring advisory partner in Scotland, said: “The number of people entering into formal personal insolvency procedures and Debt Arrangement Schemes (DAS) is significantly lower than the previous financial year. While this suggests an improvement in personal finances, we stress that people should remain vigilant as recent labour market statistics show an increase in Scottish unemployment in the year to January 2016 to 6.1 per cent.
“The increase in unemployment we are seeing is a reflection of the turmoil caused by low oil prices which induced the plunge of tax receipts from offshore to £35 million in the last financial year – compared to £11 billion four years ago.
“Furthermore, recent insolvencies, including Austin Reed, call into question the future of thousands of jobs. Borrowers should also be aware of the potential for an interest rate rise following the increase in US interest rates as this will have implications on monthly mortgage payments and credit card bills as well as reducing disposable income.
“Recent insolvencies such as Austin Reed have also come on the back of a marked increase in the number of failing businesses in Scotland.
“The latest figures show a significant increase in corporate insolvencies in the second half of the year, albeit only a marginal increase from last year. It should be noted that these statistics do not include administrations which are likely to show a further increase.
“An interest rate rise will continue this upward trend as lenders will be encouraged to call time on outstanding debts. Increases in the national living wage and changes to taxation on property portfolios may also be having an adverse impact.
“We also note that Scotland’s listed businesses operating in the oil and gas sector have broadly enjoyed recent rises in market value in comparison to earlier in the year; however, businesses operating in the North-East should be careful of a slow-down in discretionary spending by larger businesses until oil prices begin to rise once more.
“There has also been a sharp increase in Members Voluntary Liquidations in the last quarter in advance of anticipated tax increases and new anti-avoidance legislation that seeks to tax distributions as income rather than capital, although the tax increases did not materialise.
“Many businesses continue to struggle with late payments and are continuously re-negotiating on their debts to lenders and HMRC; the latter have been taking a tougher approach on tax avoidance.
“Businesses should also be wary of potential interest rate rises and uncertainty surrounding a Brexit and the impact this may have on their ability to borrow money or repay outstanding debts.”
Further reading:
Is HMRC making insolvency easier than business rescue?