£94,426,217.22 or 0.84% of HMRC Bad Debt

Duff & Phelps have produced their final report into the administration of Rangers. One headline leapt out of the coverage, which was included in the Report in a paragraph of masterful understatement as follows:-

“The Joint Administrators have continued to review the claims made by HMRC in the administration. The claims are largely made up of determinations issued by HMRC in accordance with Regulation 80, penalties and outstanding PAYE/NIC. The Joint Administrators have adjudicated on these claims and confirmed to HMRC that for voting purposes, their claim will be admitted for voting purposes at £94,426,217.22.”

I will repeat that figure – £94,426,217.22.

Once again – NINETY FOUR MILLION, FOUR HUNDRED AND TWENTY SIX THOUSAND, TWO HUNDRED AND SEVENTEEN POUNDS TWENTY TWO PENCE.

Wow!

I wondered if there was any data about the largest sums lost to the public purse in corporate insolvencies in the UK, on the assumption that that figure will not be dented by a single penny from any assets remaining in the soon to be liquidated company.

Whilst there was no definitive league table to hand in the time I was looking, I did find a very interesting article from 2010, written by a respected Partner in a firm of Insolvency Practitioners.

Steve Clancy was quoted two years ago saying:-

“… many of our banks are now in public ownership, and political imperatives may have dictated HMRC not to call in tax debts.

“Since it (HMRC’s Business Payment Support Service) was launched at the 2008 Pre-Budget Report, the service has reached over 300,000 arrangements to give over 200,000 businesses, who collectively employ more than 1.4 million people, more time to pay over £5.2 billion of tax. The vast majority of these arrangements have been with SMEs.

“On top of this figure needs to be added the overall debt owed to the HMRC by business which according to The National Audit Office, has risen by £2.7 billion to £27.7 billion in 2008-9. HMRC has already increased the provision for bad debt to £11.2 billion as of March 31st 2009 – 40% of the total owed.

“… there can be no doubt that the total now owed to HMRC could be over £30 billion. In other words HMRC is now acting more like a lender of last resort than a tax collector.

“But the growing numbers of cash strapped companies that have put off paying taxes are at risk of insolvency because of this. Increases could start as soon as the end of the year as, despite the scheme still being available, we have seen HMRC tighten up on the procedure considerably.

“After all, if a company cannot pay its current debt, it certainly can’t pay this debt plus the arrears to HMRC.

“Business owners also need to be aware that even with the introduction of deferred tax payments, all tax liabilities will still need to be paid albeit over longer and more manageable timescale in addition to meeting all current and ongoing obligations as and when they fall due.”

Looking at those figures, can we assess how bad for the public purse the demise of Rangers might be?

Based on the figures above, which are a couple of years old, the Rangers HMRC debt forms, on its own 0.84% of the bad debt provision set aside by HMRC for the entire tax debt of the UK.

It forms 0.31% of the total tax owing.

For one company potentially to have “contributed”, on its own, one one hundred and nineteenth share of the written off tax debt for the UK is a truly remarkable feat.

I know, before the comments flood in about Arsenal, Vodafone and Philip Green, for example, that other businesses have caused significant losses to the Treasury by going bust or by operating tax reduction schemes correctly. Many of those tax reduction schemes, as condemned by the Prime Minister as immoral, are entirely legal.

This is not a case of theft by the owners and directors of this company – but falls into the category described by the writer in the piece I quoted above. There is no suggestion that I have seen that the former operators of the football club were acting as they did with the tax authorities, in connection with the running of the club, to create money for themselves. Instead the money “saved” was ploughed back into the club. I also know very well the consequences of the HMRC change of view in 2010 regarding payment of outstanding liabilities.

And coming back to Mr Clancy, the author of the piece, he has proved to be the author of very wise words. He is clearly a prescient accountant.

His firm? MCR. You might not have heard of them, but they were taken over by a global Insolvency firm in 2011. You might have heard of it …

DUFF AND PHELPS!

Posted by Paul McConville