HMRC and Time to Pay agreements – advice for directors

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The availability of working capital is a real problem for companies in these challenging financial times. High interest rates mean that there is a high cost to borrowing funds so this is being avoided where possible. This means that when a one-off trading setback happens, such as losing a major customer or a bad debt, companies are struggling to adjust. Inevitably payments to creditors have to be rescheduled, in particular payments including VAT and PAYE due to HMRC.

Usefully, HMRC has recently updated its guidance on Time To Pay (TTP) arrangements. TTPs allow viable companies who cannot pay on the due date to make payments over a period that they can afford. Those lasting over 12 months are only agreed in exceptional cases. Most arrangements involve regular monthly payments being made but in exceptional cases may involve a short period of deferral.

HMRC principles of TTP

• TTP arrangements are entered into on a case-by-case basis. It is expected that all the company’s returns will be up to date in order that HMRC can accurately assess the amounts of tax outstanding.
• TTP is only agreed where HMRC believes that the customer will have the means to pay the taxes included in the arrangement and any other taxes outside the arrangement which become due during the TTP period.
• The TTP period is as short as possible.
• Under no circumstances can HMRC ever reduce the amount of tax due as part of a TTP arrangement.

Can HMRC withdraw a TTP?

HMRC has confirmed that it is bound by TTP arrangements. However such arrangements can be withdrawn if:

• new facts come to light that don’t support TTP;
• the customer has misled HMRC or been untruthful;
• the customer defaults on the arrangement or does not satisfy the conditions of their TTP;
• any other reason comes to light where it becomes apparent that tax is at risk.

Negotiating a TTP with HMRC

Questions still exist over the amount of information that companies have to provide to support their application for a TTP. It is our understanding that for debts of less than £100,000, these are likely to be approved without too many queries, and for those with debts of less than £1m they will require some supporting evidence such as management accounts, forecasts and justification. For debts over £1m, HMRC will require detailed supporting documentation/evidence and will carry out a detailed review and investigation as higher-level approval will be needed.

HMRC will consider:

• The long-term viability of the company
• The probability of a Time to Pay plan being successful
• Appropriate alternatives if the business does not keep to the plan

TTPs provide a breathing space for viable companies that are experiencing financial issues. They allow formal insolvency procedures to be averted, avoiding additional costs of fighting legal action and also allow surcharges and penalties to avoided if the TTP is in place before a tax payment is due. However, if repayments are not met in full and on time, recovery action by HMRC is likely to be accelerated, so TTPs are not to be entered into lightly. Directors must be honest and realistic when approaching HMRC to enter into such an agreement.