Food manufacturers are being squeezed by the government as HMRC withholds VAT refunds to claw back tax owed, putting thousands of jobs at risk, a restructuring expert working with suppliers has warned.

Temporary deferrals of PAYE and National Insurance have been part of the package of measures introduced by Chancellor Rishi Sunak to help cash-strapped businesses survive the Covid-19 crisis. Companies were also able to hold off VAT payments for three months up to June and repay by March 2021.

However, some food manufacturers are being put under new pressure by the taxman, with HMRC holding on to expected cash payments to recoup owed tax, according to restructuring and turnaround specialist Bill Dixon.

Food manufacturers have zero VAT-rated revenues but receive VAT refunds from HMRC for purchases made to their own suppliers.

Two businesses in the north west working with Dixon, which employ a total of about 2,000 staff, expected to repay PAYE and NI owed to the Exchequer over a period of 12 to 15 months. Instead, they have missed out on substantial VAT refunds.

Dixon said the move was counterproductive to the help offered by the government since March and could be the difference between survival and collapse as cashflows are squeezed once again.

“If inhibition of VAT refunds is an HMRC policy, this will have a massive, potentially terminal impact on many businesses and will damage the economy as a whole,” he added.

HMRC told The Grocer it had the ability to offset refunds owed to taxpayers against debts owed to the Exchequer, but it wasn’t a policy to do so automatically.

“HMRC stands ready to support any taxpayer in financial distress as a result of Covid-19 and we would urge any employer that may struggle to pay its outstanding tax liabilities to contact us as soon as possible,” an HMRC spokesman said.

“Any business or self-employed individual can contact HMRC’s helpline for help and advice. They may be eligible to receive support with their tax affairs through HMRC’s Time to Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.”

Dixon called for clear policy from the government on repayments.“Without policy, HMRC appear to be treating each case on an individual basis,” he said.

“Early evidence suggests HMRC are being aggressive where businesses have legitimate VAT refunds to claim and are offsetting these refunds against the agreed deferments.

”By using a case-by-case basis, HMRC ignore the national strategy, leaving it to inspectors to judge company Covid recovery plans before the crisis is over, something neither they, nor anyone else, is currently equipped to judge.”

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