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A large number of small businesses are using the Time To Pay scheme rather than applying for credit. According to R2, an insolvency trade body, a number of companies are applying for the TTP scheme before considering whether they will be able to turn their situation around before the end of the extended period. Some businesses are applying to the scheme as an alternative to credit facilities, or to extend credit.

The Time To Pay scheme was launched to offer businesses an agreed amount of time to pay their tax. This was to be used if a business couldn’t make a payment on time, but would be able to pay the outstanding amount within an agreed timescale. R2 issued a warning on the 1st August 2011 to companies who are using the scheme rather than applying for credit.

According to Frances Coulson, the president of R2 the result of these risky applications is ‘zombie businesses’ which can only function successfully with constant aide. Coulson said:

“Instead of Time To Pay being used as a breathing space for businesses undergoing a time of temporary difficulty to restructure their finances, it is in fact being used as an alternative credit facility, giving rise to ‘zombie’ businesses.”

Coulson also acknowledged that the TTP scheme has been invaluable for small businesses, stopping the rise in the number of insolvencies that would normally follow times of financial difficulty. Out of £970 million which is owed through the TTP scheme, only £320 million will be paid leaving a deficit of £650 million.

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