Time to pay arrangements can be useful for some businesses who are struggling to pay their taxes. But they are only a one time solution and not appropriate for all companies. Our experts can help advise whether it is the right option for you. Don't settle for second best.
Time to pay arrangements are the most common form of negotiated agreement that can be entered into between HMRC and a taxpayer. The taxpayer will normally be a company or an individual trading their business, with tax arrears. This are most often VAT, but may also extend to PAYE and corporation tax.
A time to pay arrangement will usually be a deferred arrangement over a period of time and we have seen over the years that HMRC’s flexibility and treatment of such arrangements does vary according to government policy and the political mandate of the time.
We would always recommend early engagement with HMRC where there is a concern about a company’s ability to pay tax due and where a company is seeking time to pay so to assist its cashflow. In our experience, it is better to be proactive in the approach with HMRC.
HMRC’s Business Payment Support Services will consider any application to enter into a time to pay arrangement.
- this is easily accessible online but is regarded by HMRC as a one-off service;
- it cannot be relied on for continuous periods;
- it exists to provide companies and businesses with support for that one period where their tax liability may otherwise cause the business to cease trading but is capable of being remedied;
- those applying will need to evidence that the company has the ability to pay the future payments due under any agreement Time to Pay Arrangement.
A time to pay arrangement will help you avoid the additional charges that will otherwise be applied by HMRC.
Period of agreement
The period of any time to pay arrangement will usually be between 3 – 6 months, depending on
- the conduct to date of the company; and
- the level of arrears and perceived risk to HMRC,
However, this period may, in certain circumstances, be extended to 12 months where HMRC are genuinely persuaded that the business is unable to pay sooner. However, HMRC will also need to be satisfied that the company is not on the verge of insolvency.
The time to pay arrangement will not reduce the tax due and will have to include all
- interest; and
- surcharges previously applied,
Hence the need to ensure that negotiations are commenced early on to mitigate such costs.
Default under a time to pay agreement
HMRC may withdraw a time to pay arrangement at any time where
- there is default of any of the conditions. It is therefore important to make sure that all repayments are made on time;
- a time to pay arrangement that was entered into on the basis of false or misleading information.
Important issues to remember
A time to pay arrangement does not suspend the need to file returns or make payments to HMRC for ongoing liabilities.
It is merely an agreement whereby HMRC are willing to suspend enforcement of the outstanding tax liability in exchange for an agreement to repay such sums by instalments over a fixed term. You therefore need to consider carefully whether your business may find itself subject to the stress of two tax liabilities, the trading aspect and the ongoing liability under the time to pay arrangement.
A time to pay arrangement should not be entered into lightly and it is only appropriate to businesses that are
- facing short-term funding or cash-flow difficulties;
- but are otherwise are able to manage the financial constraints of the time to pay arrangement going forward.
We often find that a time to pay arrangement is instead used to delay the inevitable, which can often make the situation worse for those who own and run their business, as company directors can be personally liable in certain circumstances.
What other options might be available for a genuinely struggling business?
A time to pay arrangement may be inappropriate where a business is struggling and it is likely that the inability to meet tax liabilities will be reoccurring. It is only ever a one-off option and is not intended to be relied on to support a company or business’ continued trading (which in effect is wrongful trading by a company and its directors).
In such circumstances it may be more appropriate for your company or business to consider
- restructuring its debts; or
- seeking an alternate insolvency process such as administration or liquidation.
At Francis Wilks & Jones we regularly act for directors and individuals who need assistance exploring these options, including negotiating a time to pay arrangement with HMRC. We can also assist and advise on restructuring issues and whether there is an alternative to the time to pay arrangement as described above. Should you require any assistance, please contact our Director Services team who can discuss such matters with you.