What You Need to Know about ‘Time to Pay Arrangements’ with HMRC

A Warning

As you may have seen from previous blogs, dealing with HMRC can be one of the greatest pressures to your Company’s survival if, as one of your creditors, you fall behind with your Corporation Tax, PAYE or VAT payments.

If these problems are not resolved then HMRC can petition for a Winding up Order that places a limited company into compulsory liquidation.  The Official Receiver then can realise the company’s assets and distributes the proceeds to HMRC and other creditors.

This situation can be avoided!  If you are experiencing cashflow problems then, since HMRC is likely to be one of the creditors, one of the steps you can take is agree an ‘Time to Pay’ arrangement with them. This is particularly advisable because HMRC now have stringent processes in place that enables them to spot late tax payers very quickly.  This in turn can suggest to them that your company is in danger of becoming insolvent and lead them to consider whether to start enforcement proceedings.

What is ‘A Time to Pay’ Arrangement?

A Time to Pay (TTP) arrangement is a method that allows you to pay monies owing to HMRC in monthly instalments.  Usually this can last up to six months or a year, although longer periods can be agreed depending on your Company’s individual circumstances.

As with most issues involving financial difficulties, doing nothing and hoping for the best is the worst possible course of action.  If you are having problems paying tax bills or can see that you are likely to have issues in the near future, then you need to take action now and possibly consider TTP as a route to keeping HMRC satisfied.  In these circumstances you could well have other creditor problems and while these may not have the urgency of HMRC they should also be addressed as early as possible.

Another good reason for addressing payment to HMRC early is that the better your payment history, the more likely it is that a TTP arrangement will be agreed.  The key to achieving the best outcome is to communicate with them to keep them informed.  However if you have already missed a payment it does not mean an arrangement cannot be made, just that it becomes more difficult.

How does a ‘Time to Pay’ Arrangement work?

If HMRC are going to agree an arrangement you will need to develop a business case that contains:

  • The circumstance leading to your company needing this support.
  • The schedule of monthly repayments.
  • How you are going to be able to be able to afford them.
  • Cash flow forecasts and projections going forward.

Realism is the key as HMRC will reject any case that they feel is not deliverable.  So do not suggest a level of repayment that you cannot sustain.  In assessing your business case HMRC will look at the long-term viability of your company together with the likelihood of it being able to deliver what has been offered.

While you are negotiating a possible deal, HMRC will let you know how the process works and the penalties if you either fail to keep up repayments or provide them with inaccurate information.

What are the Factors that HMRC will consider?

  1. The long-term viability of the company is a crucial factor. Even profitable companies sometimes run into cash flow problems and in these cases a TTP proposal is more likely to be considered favourably.
  2. If a company has tried to keep up to date with their tax debts, then again this is looked on positively.
  3. The length of time for a TTP is usually less than a year but each one is set for a fixed period. In certain special circumstances it is possible to get a longer period but if this is necessary there may be other better routes to consider.

Other areas to understand

  1. The full tax bill has to be paid plus interest, a TTP is a way of spreading its payment over a longer time.
  2. The payment period must be a short as is reasonably possible
  3. It will only be accepted in the case of financial difficulties and not because company would like to use the monies for other purposes or any other reason.
  4. HMRC will stick to an agreement if the company is delivering as agreed. However if the terms are breached they do have the right to withdraw it.
  5. If during the arrangement the company’s financial position improves or deteriorates it is essential you notify HMRC immediately.
  6. While a TTP will avoid late payment penalties, the company will still usually be liable for interest on the amounts outstanding. However each case is assessed on an individual basis.

Is a ‘Time to Pay’ arrangement the right solution?

 If your financial problems are HMRC related then a TTP could be the right solution for you.  However, depending the totality of the company’s financial problem, e.g. large debts with other creditors and matters relating to its ongoing viability, other routes will need to be taken.  Navigate BR has the knowledge, skills and experience to help you choose the best course of action and as with all problems that could risk the survival of your company.  The mantra is ‘Act Now’.

Your Next Step

This is a complex area and you will only have one chance to get it right.  If you need to find out anything further about this subject then please call me on01494 786 000 or 07961 116 321. And of course all conversations will be in strict confidence. You can also email me, vee@navigatebr.com

DISCLAIMER This blog / article is for information and interest only. It is not a substitute for full professional advice, which will take account of the specific and individual circumstances surrounding your matter. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.

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T: 01494 786000 – M: 07961 116321