The changes to National Minimum Wage, employers' National Insurance and business rates, combined with the current economic and political uncertainty, have all led to a fall in business confidence. It is therefore inevitable that some businesses will face difficult financial challenges which may result in a build-up of creditor arrears, including liabilities due to HMRC such as VAT or PAYE.
For some businesses, a formal Time to Pay Arrangement (TTP) with HMRC may afford them some valuable breathing space and enable them to get back on an even keel by rescheduling these debts over a period of time.
What is a TTP Arrangement?
A TTP is a formal arrangement with HMRC whereby a company repays its debts due to HMRC over an agreed period.
Most arrangements involve regular monthly payments being made, but in some cases they may involve a short period of deferral.
A well thought out and affordable TTP will allow a business to repay the debt over a period that it can afford.
To agree a TTP, HMRC must be of the view that the business is fundamentally viable, and the company has the means to pay the taxes included in the arrangement, plus meet ongoing HMRC liabilities on the due dates.
TTP arrangements are looked at on a case-by-case basis by HMRC and there is no “standard” TTP. Agreement of a TTP will to an extent depend upon the view of the individual case officer assigned to the matter.
What debts should be included in a TTP arrangement?
The debts due to HMRC across all taxes should be considered when arranging a TTP. HMRC will not expect further debts to accumulate across other areas of tax, and not paying other taxes can result in the terms of the TTP being breached. Interest, penalties, duties and surcharges can all be included within a TTP.
How important is a company’s compliance history?
If previous TTPs have not been adhered to and HMRC have not been kept up to date with developments, then it will be more difficult to negotiate a TTP. Conversely where a company has a good compliance history and has engaged with HMRC in advance of problems, then a TTP is far more likely to be approved.
Can I set up a TTP online?
For smaller debts in respect of PAYE and VAT, a TTP can be set up online provided certain criteria are met, including:
£100,000 or less is due in respect of PAYE or VAT
The deadline for payment in full has been missed
The debt will be paid in full within 12 months
There are no other payment plans or debts with HMRC
All returns have been filed
How long is a TTP?
HMRC require the TTP to be as short as possible with monthly repayments being maximised.
Most TTP arrangements are for a period of 12 months or less, however, in certain case-specific circumstances TTP arrangements can be much longer.
What information is required by HMRC?
HMRC expect that all company returns will be up-to-date in order that HMRC can accurately assess the amounts of tax outstanding.
As a rule, the greater the HMRC debt, the more information HMRC will require.
We would always recommend that a company has up-to-date management accounts and sensible forecasts prepared in advance of any discussions with HMRC.
For debts over £1million, HMRC will require detailed supporting documentation/evidence and will carry out a detailed review and investigation as higher-level approval will be needed.
Negotiating with HMRC
Under no circumstances can HMRC ever reduce the amount of tax due as part of a TTP arrangement.
Smaller debts will be easier to negotiate than larger debts and may sometimes just be agreed with one phone call.
Each TTP proposal will depend upon the specific circumstances of the company, however, some general guidelines are below:
Proposals should not:
be back-end loaded
show excessive directors’ remuneration
include non-essential loans being repaid (e.g. directors’ loans, intercompany loans)
include unfunded capital expenditure
Proposals should be:
as short as possible
maximise monthly payments
affordable
When considering a TTP HMRC will look at:
the long-term viability of the company
the probability of a Time to Pay arrangement being successful
appropriate alternatives if the business does not keep to the plan
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
Why is my lender concerned about HMRC debt?
The level of arrears due to HMRC will be of concern to a business’s lender since much of the debt due to HMRC will be classed as “preferential” debt which means that in the event of an insolvency of the company, these debts may be repaid ahead of those of the lender.
To mitigate this risk, the lender may seek to reduce its exposure to the business, for example reducing an overdraft facility, which is likely to mean that the business comes under even more financial pressure.
What are the advantages of a TTP?
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 enforcement action
They allow surcharges and penalties to be avoided if the TTP is in place before a tax payment is payable
If a formal TTP is agreed, it will give a lender the confidence that, provided the TTP is adhered and current liabilities are kept up to date, HMRC will not take enforcement action against the company.
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 seeking a TTP from HMRC.
If you’d like any further advice or information, please contact our Restructuring and Insolvency team who can assist you with your TTP proposal.
