Companies that are experiencing cash flow problems and have fallen into PAYE and/or VAT arrears temporarily should try to negotiate a Time to Pay or TTP arrangement with HMRC.

In short, this is a payment plan for outstanding taxes, where companies can ask for more time to settle their Corporation Tax, VAT and PAYE arrears if the financial glitch is only temporary. If a TTP arrangement is put in place before a tax payment is due, penalties can be avoided.

What is a TTP arrangement?

This type of agreement with HMRC spreads tax payments over a longer period of time than normally available.

In addition to Corporation Tax, VAT and PAYE arrears, it can also be used when directors anticipate cash flow problems with upcoming payments and it may help the company to avoid a late payment penalty if they miss the deadline.

HMRC will always want to make sure that directors are not deliberately trying to avoid meeting their tax obligations. Therefore, it will consider every arrangement on an individual basis, as well as the industry the business operates within and the company’s history of tax repayment.

When HMRC is satisfied that the company is not trying to avoid its tax liabilities, it will agree to a TTP arrangement. At this point, it’s vital that directors are realistic about what the company can afford before the plan is agreed, so that these payments are met in full on time for the duration of the arrangement.

If the company should default on a payment, its financial woes will worsen very quickly. HMRC could cancel the TTP arrangement all together, call in the total debt with penalties or make a move to wind up the company.

In contrast, when an arrangement is agreed and kept to, interest is charged on the amount to be paid but penalties may be lifted if the company has made contact with the tax authority promptly and acted responsibly to rectify the financial situation.

The advantages and disadvantages of a TTP arrangement

The advantages are as follows:

  • They provide breathing space for profitable companies that are having temporary cash flow problems
  • Tax repayments are made over a longer period of time
  • Insolvency is avoided
  • Legal action is averted
  • Managing cash flow becomes easier and less stressful

The disadvantages are as follows:

  • Agreed payments must be met in full and on time, always
  • If a company operates within a high-risk industry, it can affect its chances of negotiating a TTP agreement.
  • Interest is payable on the debt
  • If the arrangement is cancelled, HMRC may take enforcement action.

Applying for a TTP arrangement

Companies struggling with cash flow and meeting their tax liabilities will need to prepare before talking to HMRC. They will need to put forward a strong proposal that will convince HMRC to agree to a TTP arrangement.

It may also be beneficial to seek the advice of a professional insolvency practitioner or for him or her to negotiate on their behalf. The proposal should be realistic in terms of what the company can afford to repay, which should be backed by evidence in the form of sales and cash flow forecasts and cost-cutting plan.

The person negotiating for or on behalf of the company should show their determination to HMRC that repayments will be made in full and on time.

During the negotiation, HMRC will ideally want the arrangement to span the shortest possible time frame, with the highest repayments possible, so that it recoups its money quickly. However, directors must be careful only to offer only what the company can afford.

Companies that are facing temporary cash flow problems and may not be able to meet their tax liabilities should contact the tax authority as soon as they realise that there may be a problem as this will not only strengthen the case in favour of a TTP arrangement, but it will also help to avoid late payment penalties.