The taxman could be facing a loss of up to £650m in tax debts it allowed to build up as part of arrangements to tide businesses over during the recession.
Of that £1bn, £650m has not been paid as initially agreed by HMRC with the businesses concerned. The figures were obtained by R3, the insolvency trade body. It is understood that some businesses have seen their HMRC debts effectively rolled over four times, R3 said.
Frances Coulson, R3's president, said: "Time to Pay has played a vital role in preventing the spike in corporate insolvency numbers that usually follow the end of a recession, but these figures give rise to serious concerns about the way the scheme is operating."
"Time to Pay should be used as breathing space for businesses undergoing temporary difficulty. However, if a business is on their third or fourth referral, that should act as a warning sign; it indicates that there are underlying problems with its cash flow. It should make HMRC question the financial viability of that business."
Between the launch of the scheme in November 2008 and the end of March 2011, Time to Pay struck more than 400,000 deals, allowing breathing space on £7.4bn of tax debts.
The scheme was widely welcomed when it was introduced, but HMRC faces a challenge to unroll the arrangements. If the structures are dismantled too quickly as the economic situation improves, many businesses could go to the wall.
"Research shows that one in four corporate insolvencies is caused by another business going into insolvency," Coulson said. "This means that should the businesses who have had multiple Time to Pay arrangements fail, not only will the government be left out of pocket, but a considerable number of businesses would be left exposed."
HMRC sources insisted that the £650m debt was "collectable", and would be recouped either under new Time to Pay arrangements, or as part of normal debt collection procedures.
An HMRC spokesman said: "The majority of businesses that have entered into time to pay arrangements with us are fundamentally viable and are still in business in no small part due to the practical support provided by our time to pay arrangements.
"Around 90% of the tax that was rescheduled has been paid and this, coupled with the enormous benefits that small businesses deliver to the country through their tax revenues, jobs, and long-term expansion, strongly justifies our pragmatic approach."
