This thing is bigger than both of us

March 7th, 2018

In The Hitchikers Guide to the Galaxy, author Douglas Adams recounts how a mighty galactic fleet of hostile spaceships journeys across the universe to attack Earth. When they arrive, due to a terrible miscalculation of scale, the entire battle fleet is accidentally swallowed by a small dog.

“Those who study the complex interplay of cause and effect in the history of the Universe say that this sort of thing is going on all the time but we are powerless to prevent it”, adds the author.

He may be right about that – and when you apply the analogy to one of the possible causes of insolvency he is definitely right.

I mention this because some of my accountancy colleagues have been impressed by HMRC’s decision to look kindly on requests for deferred VAT payments from Carillion-affected businesses struggling with cashflow. If this leads them to conclude that onrushing irresistible forces can be turned aside to protect clients with struggling businesses they should think again. You can’t resist irresistible forces – the clue is in the name.

Let us take two examples. In fact, let’s start with HMRC itself. What is the latest news from this white knight champion of wobbling small companies? Ah yes – it has started a massive crackdown on small firms who are late in paying their taxes. According to research by the online finance platform Funding Options, (we don’t endorse anyone and other finance providers are available!) there was a 21 per cent increase last year in the number of attempts made by HMRC to shut down small businesses because of unpaid taxes.

In fact, the 4,710 winding up petitions issued to business owners last year (including those presented by HMRC) represented a five-year high (after 3,906 in 2016, and 3,485 in 2015). In addition, in the 2016/17 tax year HMRC also exercised its power to seize assets directly from 1,953 UK firms, an increase of 23 per cent since the previous tax year. Faced with a winding up petition or seizure of assets, many businesses ultimately close. More information on that here.

The second irresistible force is the Bank of England’s Monetary Policy Committee (MPC) which meets every month to set UK interest rates. Yes, I know – I have been going on in this blog for months about the danger that even a small increase in the bank rate will bring to small firms who operate with very tight margins.

So don’t listen to me, listen instead to businessadvice (businessadvice.co.uk), the online information service catering for what it calls “the engine room of the British economy”. It says that an interest rate hike from 0.25 per cent to 0.75 per cent would cost small business owners £355million. More information on that here.

Quoting new research by specialist debt adviser Hadrian’s Wall Capital it points out that the rise in interest costs would be entirely passed through to small business due to the lack of fixed-rate lending that is available to them. It states that only £24bn of lending to SMEs in the UK – just 16 per cent of the total – is on a fixed-rate basis, with £128bn of lending on a floating rate.

Neither HMRC nor the MPC are likely to be accidentally swallowed by a small dog anytime soon. Business owners, their accountants and business advisers, and not even insolvency practitioners can resist an irresistible force.

What you can do – what we DO for many of our clients who are struggling against irresistible forces – is to achieve the best possible outcome and to manage the process (whichever way it goes) in a way that maximises any benefit and reduces the impact on those involved.

Don’t be afraid to seek help – contact us earlier rather than later to keep as many options open as you can.