Pictured above: Paul Edwards of Crowe Clark Whitehill 

As the economy continues to stutter and businesses continue to fail, the taxman is turning his attention to the tricks of the trade.

Now experts at national audit, tax and advisory firm Crowe Clark Whitehill, which has offices in Kidderminster and Walsall, are warning that the pre-pack administration could come under increased scrutiny.

Paul Edwards, Tax Director at Crowe Clark Whitehill in the Midlands, said the method had only become a favourite over the last decade.

In a pre-pack, the insolvency practitioner has a deal in the bag before the business concerned goes down. Once everything is agreed the firm enters administration and its assets are immediately sold to the new company which, typically, continues to trade from the same premises, has much the same management and undertakes similar activities.

Mr Edwards said: "Critics maintain such 'phoenix companies' are simply ripping off creditors, a means of dumping their debts.

"They would claim there is no attempt to test the market for a higher offer and point out it can often cause further misery down the line among suppliers.

"Insolvency practitioners like pre-packs because they are quick, ensure a disposal, preserve jobs, avoid the risk of the business haemorrhaging customers, and put the concern back in the hands of people who know the sector."

Very often though it is the taxman who loses out, traditionally the very last person a struggling business pays.

And increasingly that is beginning to annoy HM Revenue & Customs.

HMRC has sought to help businesses genuinely affected by the current economic conditions and, since the introduction of the Business Payments Support Service (BPSS) in November 2008, more than 300,000 deferrals totalling £5.2 billion have been agreed.

Nevertheless, the number of administrations in England and Wales has risen steadily as has the number of pre-packs.

Mr Edwards cautioned: "HMRC is becoming alarmed at the figures and suspects a significant proportion may be bogus - simply a means of evading tax.

"It is taking a much closer look at suspected abuse cases, and the activities of directors, particularly if sums appear to have been misappropriated from the company prior to insolvency.

"Indeed it may be tempted to go after directors in a bid to get money back."

He believes it could lead to a jump in the number of directors facing disqualification periods.

"The Revenue is clearly fed up of allowing phoenix companies to be formed at the expense of the Crown."

And, he added, HMRC was also scrutinising BPSS applications more closely.

"Given the parlous state of the public finances the Government wants to see as much tax raised as possible," said Mr Edwards.

"However, there are those who believe the Revenue will never retrieve a significant proportion of the deferred tax. That could result in a much tougher attitude from the taxman and more BPSS applications being rejected."

For more information about Crowe Clark Whitehill, please visit their website here: www.croweclarkwhitehill.co.uk