'Taxman to get tough on soft targets'

THE Inland Revenue is getting ready for the most aggressive drive against tax arrears in its 154-year history, the Financial Mail on Sunday has learned. Smaller businesses facing temporary financial difficulties could be prime targets for the new tax blitz.

The taxman is responding to the looming loss in September of his ancient right to be head of the queue for repayment when a firm goes bust.

Because it will no longer be given 'preferred creditor status', the Revenue has decided to abandon its previously relaxed stance towards companies that might be in danger of collapse.

In one key area of central London, the number of Revenue staff devoted to 'debt collecting' has recently jumped from one part-timer to six full-timers.

The Revenue stressed that 'it would continue to take an understanding approach to taxpayers in difficulties, as it has always done'. But a senior figure in the insolvency profession said: 'This new approach is all about going after soft targets. It will see the focus shift to companies with both a good previous record and some assets that are worth seizing.'

The end of the Revenue's special status was flagged in 1998 by the former Trade and Industry Secretary Peter Mandelson. He suggested that it would be the Government's contribution to removing the stigma of bankruptcy and creating a more entrepreneurial society.

But Keith Goodman, a partner at insolvency practitioner Leonard Curtis and a former president of the Insolvency Practitioners' Association, said: 'The emphasis now is on finding troubled firms that have previously been up to date with their tax payments and that have something that is worth seizing in lieu of debt.'

A spokesman for R3, the trade association for all professionals involved in business-recovery, added: 'The loss of preferred creditor status is going to cost the Revenue a lot of money unless the taxmen become aggressive creditors. They will be going after companies with a previously good record, on the basis that late tax payment by such firms is usually the first indication of something going wrong. The Revenue will be determined to get in before any other creditors.'

The Revenue denied any focus on 'soft targets'. A spokesman said: 'We do expect businesses to pay their tax when it is due. However, where they are in temporary financial difficulties, we will do our best to help.'