Do you need more information about time to pay arrangements with HMRC?
Companies that are experiencing cash flow problems and have fallen into arrears have the option of negotiating a Time to Pay (TTP) arrangement with HMRC in order to pay their tax bill in installments.
In short, this is a payment plan for outstanding taxes, but there are strict criteria for getting one.
Read on to find out more.
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What is a Time to Pay 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.
Will HMRC Give me Time to Pay?
When HMRC is satisfied that the company is not trying to avoid its tax liabilities, it will agree to a TTP arrangement, assuming there isn't one already in place.
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.
How do I Set up a Payment Plan With HMRC?
If it's for self-assessment, you should be able to do this online here.
For limited companies, you'll need to contact HMRC's Payment Support Services.
Payment Support Service
Telephone: 0300 200 3835
Monday to Friday, 8am to 4pm
Can HMRC Refuse a Payment Plan?
These are some likely situations in which HMRC would refuse a time to pay arangement
- They don't feel you can pay
- They don't feel like you're being honest with them
- You've recently had another payment plan
- You are already insolvent
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.
How Long will HMRC Give me to Pay?
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.
TTP arrangements very rarely exceed 12 months in duration.
How do I negotiate with HMRC?
Companies that are facing temporary cash flow problems and may not be able to meet their tax liabilities can often benefit from the experiences of a HMRC mediator.
HMRC are open to negotiation but this needs to be done in the right way and of course it helps to have the assistance of someone used to dealing with them.
In broad terms HMRC want the economy to be strong and that means keeping as many businesses from insolvency as possible. That said, they generally take a very tough stance if they feel people aren't being honest or organised with them, and on occasion will wind up a company even at a loss to themselves in order to make an example.
Late Payment Interest Rate
Current HMRC interest rates for late payments are 2.60% from 7/4/20 and 0.5% for repayment.
Check the government page here for the latest figures.
Does HMRC debt affect credit rating?
HMRC debt does not affect your credit score, so this is not something to worry about.
This would only happen if the debt remained unpaid and was escalated into a County Court Judgement. This situation would prove detrimental to your company's credit record.