Tax Disputes and Time to Pay Arrangements
Practical guidance for companies and directors dealing with HMRC arrears, tax investigations and disputed liabilities.
Problems with HMRC rarely improve by being ignored. Tax arrears can increase through interest and penalties, correspondence can become more serious and enforcement action may follow if no credible proposal is made.
The difficulty is that HMRC problems are not all the same. A company may accept that tax is due but need time to pay it. There may be a genuine disagreement about the amount assessed. HMRC may be investigating suspected errors, tax avoidance or deliberate conduct. In other cases, the company may already be facing enforcement action or the threat of a Winding Up Petition.
At Navigate Business Recovery, we help directors understand what HMRC is alleging, establish the true financial position and consider the most practical way forward.
Understanding the HMRC Position
The first step is to establish exactly what is owed and why.
A company may have arrears relating to Corporation Tax, Value Added Tax, PAYE, National Insurance contributions or deductions under the Construction Industry Scheme. The amount claimed may include estimated assessments, interest, penalties or liabilities arising from a compliance check.
Before proposing a settlement, it is important to separate tax that is accepted as due from amounts that remain disputed. Missing returns, inaccurate records and estimated assessments should also be addressed, as HMRC is unlikely to agree a sustainable resolution while the underlying tax position remains unclear.
We can work with the company, its accountant and other advisers to understand how the liability arose, identify any immediate deadlines and prepare a clear response.
Time to Pay Arrangements
A Time to Pay arrangement allows an individual or business that cannot pay its tax bill by the due date to seek additional time and make payments by instalments.
HMRC considers each request on its own facts. It will normally want to understand why the debt arose, what can be paid immediately, how much can realistically be paid each month and whether future tax liabilities will be paid on time. HMRC describes Time to Pay as a way for viable taxpayers who cannot pay on the due date to clear the liability over an affordable period.
A proposal should be realistic. Offering more than the company can afford may secure a short term agreement but lead to failure later. Offering too little without proper evidence may give HMRC no confidence that the position is being taken seriously.
We can help review cash flow, determine what the company can genuinely afford and present the proposal with supporting financial information. This may include management accounts, forecasts, details of current liabilities and an explanation of the steps being taken to prevent further arrears.
A Time to Pay arrangement does not normally stop interest from running, and the company will generally be expected to keep future returns and payments up to date.
When the Amount Owed Is Disputed
Not every HMRC matter is simply a debt collection problem.
There may be disagreement about the tax treatment of a transaction, whether income or expenditure has been calculated correctly, the level of a penalty, the interpretation of records or whether HMRC has drawn the correct conclusions from the available evidence.
In those circumstances, agreeing an instalment plan may not address the real issue. The disputed liability may need to be reviewed, challenged or resolved through HMRC’s formal procedures.
This can involve further correspondence, a statutory review, an appeal or an application for Alternative Dispute Resolution. HMRC states that civil tax disputes must be resolved in accordance with the law and its Litigation and Settlement Strategy, rather than through a general commercial compromise or an informal package deal.
That distinction matters. HMRC may negotiate how and when an agreed debt is paid, but it cannot simply reduce correctly due tax because a lower figure would be commercially convenient.
Alternative Dispute Resolution and Mediation with HMRC
HMRC operates an Alternative Dispute Resolution process for suitable tax disputes.
An impartial HMRC mediator helps the taxpayer, their representatives and the HMRC case team identify areas of disagreement, improve communication and explore whether the dispute can be resolved without proceeding to the Tax Tribunal or Court.
The mediator does not impose a decision, and the parties retain control over whether an agreement is reached. Alternative Dispute Resolution can be used during an enquiry and, in appropriate cases, before or after HMRC has issued an appealable decision.
It is important not to confuse HMRC Alternative Dispute Resolution with asking an independent commercial mediator to decide the correct amount of tax. HMRC’s process uses an HMRC mediator, and any resolution must remain consistent with the tax law and HMRC’s settlement framework.
Our role can include helping the company prepare for the process, clarifying the issues, organising the evidence and assisting with communications. We can also help assess whether Alternative Dispute Resolution is likely to be suitable or whether the matter requires specialist tax or legal representation.
Tax Avoidance
Tax avoidance is different from ordinary tax planning.
HMRC describes tax avoidance as bending the rules of the tax system to obtain a tax advantage that Parliament did not intend. It commonly involves artificial or contrived arrangements whose main purpose is to reduce tax.
A director may become involved in an avoidance arrangement after relying on a promoter, adviser or scheme provider who claimed that the arrangement was lawful or approved. Discovering later that HMRC is challenging the scheme can be alarming, particularly where the original adviser has disappeared or the company faces tax, interest and penalties far beyond the expected saving.
The response should be based on the actual documents and advice received. This may include reviewing the scheme paperwork, tax returns, disclosure documents, correspondence with the promoter and HMRC’s stated grounds for challenge.
Tax avoidance cases can be technically complex. Navigate Business Recovery can help the director understand the commercial and insolvency implications, coordinate information and work alongside an appropriate tax specialist where detailed tax advice is required.
Tax Evasion and Deliberate Conduct
Tax evasion involves deliberate conduct intended to evade tax. It is fundamentally different from an innocent error, a misunderstanding or a legitimate dispute over how the law applies.
Examples may include deliberately suppressing sales, maintaining false records, concealing income, creating false invoices or knowingly providing HMRC with inaccurate information.
Allegations of tax evasion or deliberate default must be treated seriously. They may lead to substantial penalties, the publication of details in certain cases and, where appropriate, criminal investigation or prosecution. HMRC distinguishes deliberate noncompliance from mistakes and carelessness and may publish information about some deliberate tax defaulters where the statutory conditions are met.
A director should not make speculative admissions or provide hurried explanations before understanding the allegations and reviewing the evidence.
Where suspected evasion or fraud is involved, specialist tax investigation and criminal legal advice may be required. Our role can be to help the director organise the factual and financial background, understand the insolvency consequences and coordinate with the appropriate professional advisers.
Penalties, Interest and Compliance Checks
An HMRC liability may consist of more than the original tax.
Interest can accrue on unpaid amounts, and penalties may arise from late filing, late payment, inaccurate returns or failures discovered during a compliance check. The level of a penalty may depend on whether the conduct is treated as careless, deliberate or deliberate and concealed, together with the quality and timing of any disclosure.
It is therefore important to understand precisely how HMRC has calculated the figure and whether there are proper grounds to challenge the tax, the penalty or both.
Where information is incomplete, HMRC may make estimated assessments. Bringing returns and records up to date can sometimes significantly alter the position.
HMRC Enforcement and Winding Up Petitions
Where tax remains unpaid and no acceptable arrangement is in place, HMRC may take enforcement action.
Depending on the circumstances, this can include debt collection activity, taking control of goods, requiring payment from money held by a third party or presenting a Winding Up Petition against a company.
A Winding Up Petition is particularly serious. Once presented, the company’s bank may freeze its account, other creditors may support the petition and payments made from the company’s account may later be challenged.
Directors should seek guidance as soon as formal demands or threats of a petition are received. Waiting until the Court hearing may leave very little time to propose a viable solution.
Can HMRC Agree a Settlement?
The word settlement can mean different things.
Where the amount of tax is agreed, the focus may be on negotiating how and when it will be paid. Where the amount is disputed, the focus is on establishing the correct tax liability under the law.
HMRC cannot ordinarily agree to accept less tax merely because a company cannot afford to pay the full amount. It must resolve tax disputes in accordance with its Litigation and Settlement Strategy and will not normally trade one issue against another as part of a package deal.
However, there may still be scope to resolve factual or technical disagreements, challenge penalties, correct assessments, use Alternative Dispute Resolution or agree affordable payment terms for the final liability.
A successful outcome therefore depends on identifying which parts of the problem concern liability and which concern affordability.
When the Company Cannot Afford a Settlement
Sometimes the company cannot meet even a carefully structured payment arrangement.
In that situation, it is important to consider whether the underlying business remains viable. Further borrowing or repeated promises to HMRC may only delay the problem while increasing the debt.
The available options may include restructuring, refinancing, a Company Voluntary Arrangement, a sale of the business or an insolvent liquidation. The director’s personal position should also be considered, particularly where there are personal guarantees, director’s loan accounts or possible claims arising from how the company has been managed.
Taking advice about insolvency does not automatically mean that the company must close. It allows the directors to understand whether a recovery plan remains realistic.
How Navigate Business Recovery Can Help
We help directors take control of HMRC problems before correspondence and enforcement action become overwhelming.
Our work may include reviewing the tax and financial position, identifying what is agreed and what remains disputed, helping prepare a Time to Pay proposal and assisting with responses to HMRC. We can also help organise the information required for a compliance check or Alternative Dispute Resolution process and examine the wider effect of tax debts on the company’s solvency.
Where the issues require specialist tax advice, litigation or representation in relation to suspected evasion, we can help the director identify and work with an appropriate tax adviser, accountant, solicitor or barrister.
The aim is to ensure that HMRC receives a clear, credible and properly supported response rather than another promise that the company may be unable to keep.
Why Early Action Matters
Directors often delay contacting HMRC because the figures are disputed, the records are incomplete or they hope that an expected payment will solve the problem.
Delay can reduce the available options. Interest and penalties may increase, confidence may be lost and enforcement action can move quickly once HMRC considers that there is no credible plan.
Early action creates time to establish the correct liability, prepare evidence, explore mediation or appeal routes and put forward a payment proposal that reflects what the company can genuinely afford.
Next Steps
If your company is dealing with HMRC arrears, a tax investigation, disputed assessments or the threat of enforcement action, you can book a meeting with Vee to discuss the position and the available options.
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