HMRC Time To Pay Arrangement - Help, Advice & Guidance
It's never a wise decision to fall behind on payments to HMRC, whether it be for PAYE, VAT, or Corporation Tax. Once HMRC begins to pursue you and apply pressure, it can be tempting to feel like insolvency is the only solution.
However, this isn't always the case. HMRC is generally open to negotiating a payment plan solution that enables the payment of taxes and supports small and medium-sized businesses to remain viable. The key to securing a time to pay arrangement with HMRC is to maintain open and effective communication with them, providing accurate information, being consistent and transparent, and seeking the assistance of experienced negotiators who understand how HMRC operates.
What is a Time to Pay Arrangement?
A Time to Pay Arrangement with HMRC is a payment plan that is structured for the repayment of tax debt within an agreed-upon timeframe. These arrangements are formed between a business and HM Revenue and Customs, providing some financial relief for companies experiencing difficulties. While HMRC does not readily accept payment plans, they do acknowledge that businesses require assistance in certain circumstances.
How Do Time to Pay Arrangements with HMRC Work?
HMRC's supercomputer has the ability to detect late payments and will issue an automated reminder notice.
If you receive such a notice and recognise that you are unable to make the payment, it's important to take action and contact them immediately. By doing so, you can explain your financial circumstances and cash flow issues.
Facing your tax liability head-on and communicating openly is far better than ignoring the situation and risking incurring additional late payment penalties.
Typically, a time to pay arrangement with HMRC will span twelve months, and all other taxes must be paid on time or the arrangement will be deemed in default. If this happens, your company may lose HMRC's trust, which could significantly limit your options for resolving the issue future issues with them.
Can a TTP Arrangement be for Longer than 12 Months?
HMRC will not accept payments outside of twelve months unless there are exceptional circumstances (such as COVID-19). They will not negotiate reduced settlement offers.
HMRC require all other ongoing taxes to be paid promptly when due.
Advantages and Disadvantages of Time to Pay
Using a Time to Pay (TTP) arrangement with HM Revenue & Customs (HMRC) has both advantages and disadvantages.
Advantages:
Avoid Penalties
The primary benefit of using a TTP arrangement is that businesses can avoid the hefty penalties that come with late tax payments. This can help them to manage their finances more efficiently and reduce the risk of insolvency.
Flexibility
TTP arrangements offer businesses the flexibility to pay their tax over an extended period, which can alleviate cash flow difficulties and enable them to continue operating.
Improved Relationships with HMRC
By demonstrating their willingness to work with HMRC to resolve their tax issues, businesses can improve their relationships with HMRC and show their commitment to fulfilling their obligations.
Disadvantages:
Interest Charges:
While TTP arrangements can help businesses avoid penalties, they may still incur interest charges. This can increase the total debt and interest owed, making it more difficult to pay off the arrangement.
Impact on Credit Rating:
TTP agreements may have an adverse effect on a company's credit rating, potentially making it more challenging to access credit in the future.
Risk of Legal Action:
If a company fails to make the agreed-upon payments under a TTP agreement, HMRC may take legal action to recover the debt. This can involve the seizure of assets or the liquidation of the company.
Negotiating Time to Pay with HMRC
Negotiating a TTP arrangement with HMRC can be a complex and daunting process but it is important to approach it with a clear plan and strategy. Here are some tips and strategies to consider:
Be proactive
If you know that your business is going to struggle to pay its tax bill don't wait until the last minute to contact HMRC. Being proactive and contacting them early on shows that you are taking the situation seriously and are willing to work with them to find a payment solution together.
Be honest
HMRC will want to know why you are struggling if you have enough monthly disposable income to pay your tax bill so it is important to be honest and transparent about your business finances and tax affairs. Provide them with all the information they need to make an informed decision about whether to approve a Time To Pay agreement.
Have a clear payment plan
Before you approach HMRC it is important to have a clear plan for how you will make the monthly payments under the pay agreement. Make sure you have a budget in place and can demonstrate that you will be able to meet monthly payments.
Be willing to compromise.
HMRC will be more likely to approve a TTP arrangement if they can see that you are willing to compromise. This might mean reducing your spending in other areas or selling assets to raise funds.
Seek professional advice.
If you are struggling to negotiate a TTP arrangement with HMRC, it may be worth seeking professional advice from a tax expert or accountant. They can help you navigate the process and ensure that you are getting the best possible outcome for your business.
Remember negotiating a TTP arrangement with HMRC is not a one-size-fits-all solution. It will depend on your specific circumstances and the nature of your tax debt. However, by following these tips and strategies you can improve your chances of success and help your business get back on track.
Information you need to provide HMRC
You’ll need the following information in order to negotiate a TTP arrangement:
- reference number of the bill that you want to discuss
- details of other debts the business owes HMRC
- details of any tax repayments owed to the business
- information about the business’ financial position and how you expect things to change in the future
- details of efforts made to raise funds against the business’ debt
- what has been done to try to pay the tax bill
- what the business has done or is doing to get its tax affairs back on track and to afford repayments
- business’ bank account details, so that a Direct Debit can be set up
Principles and Guidelines of Time to Pay
When entering into a HMRC time to pay arrangement there are certain principles and guidelines that businesses must follow to ensure they stay compliant and avoid any potential penalties. The following are some of the key principles and guidelines that businesses should be aware of:
Honesty and transparency
Businesses must be honest and transparent with HMRC about their finances and ability to make payments. Any misleading or false information provided could result in the HMRC Time to Pay agreement being terminated.
Regular communication
It's important to maintain regular communication with HMRC throughout the TTP arrangement period. This includes making monthly payments and keeping HMRC informed of any changes to the business or company's financial situation throughout as well as providing regular updates on payments made.
Payment plan
A payment plan must be agreed upon with HMRC before the formal contract for the TTP arrangement begins. Businesses with payment plans must stick to the agreed upon payment plans and schedule making payments on time and in full.
Prioritization of payments
When using a TTP arrangement businesses must prioritise tax payments over other expenses to ensure they remain compliant.
Review of the arrangement
The TTP arrangement should be reviewed periodically to ensure it is still viable and suitable for the business's current financial circumstances and situation. If the business's circumstances change it may be necessary to renegotiate the arrangement.
How Much ‘Time to Pay’ Will I Be Given?
The length and amount of time for a Time to Pay arrangement with HMRC is determined on a case-by-case basis taking into account various factors such as the amount owed, the nature of the tax owed, the financial situation of the business, tax liabilities and the history of compliance with tax obligations with HMRC.
Generally, HMRC aims to offer TTP arrangements that are fair and realistic for the business to manage. A TTP arrangement needs to:
- be affordable
- pay off the debt as quickly as possible
The length of the TTP arrangement can range from a few weeks to several months, depending on the financial circumstances. HMRC may also set a further upper limit on the amount of time that a TTP arrangement can last.
It will be reviewed regularly and can be adjusted over time. It can either be:
- shortened if the financial position improves
- lengthened if the financial position worsens but remains in a position to recover
It is important to note that the longer the TTP arrangement the more interest and penalties on the debt payable may accrue over time. Therefore, it is essential for businesses to work with HMRC to find the best payment solution and a repayment plan that is realistic and manageable while also minimizing any additional future tax liabilities and cost.
The current rate of interest is taken from guidance on the HMRC website:[1]
HMRC interest rates are set in legislation and are linked to the Bank of England base rate. There are 2 rates:
- late payment interest, set at base rate plus 2.5%
- repayment interest, set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’)
The late payment interest rate encourages prompt payment. It ensures fairness for those who pay their tax on time.
Ultimately, the length and amount of time for Time to Pay arrangements will depend on the specific circumstances of the business and how negotiations are handled with HMRC.
Treatment of Business Assets in TTP Arrangement
It may necessary to enter into discussions with HMRC about how you might raise funds to pay HMRC liabilities by realising business assets before agreeing a TTP arrangement. Assets may include:
- stock
- debtor collections
- vehicles
- investments
- realising equity in a business property
- directors introducing personal funds into the business
- borrowing
- extending credit lines
What Happens if you Default on the TTP Arrangement?
The payment plan will come to an end if you fail to keep to a payment plan you’ve already negotiated. It will also fail if other due taxes are not paid. Penalties can also be added where a TTP Arrangement is cancelled.
Legal action could result in
- a Distraint Order Notice where HMRC announce their intention to enter your property and seize company possessions; or
- a Winding up Petition being served on the company and the compulsory liquidation of the company. Consult an insolvency practitioner if you find yourself in this position.
Can HMRC Break the Agreement?
While a Time to Pay arrangement can be a useful tool for businesses struggling to pay their tax bills it is important to be aware that HMRC can terminate the arrangement if certain conditions are not met.
There are several circumstances under which HMRC may terminate the agreement including:
- Failure to make payments
- Failure to submit tax returns
- Failure to comply with the terms of the agreement
The consequences of HMRC terminating the arrangement can be severe. For failing to make the agreed-upon monthly payments the company may face penalties, interest charges, or legal action from HMRC.
It is critical to maintain regular contact with HMRC and inform them of any changes in circumstances that may affect the arrangement. This can help to avoid misunderstandings or disputes that could lead to the agreement being terminated.
How to Contact HMRC about a Time to Pay Arrangement?
Failing to pay your tax and neglecting to establish an HMRC Time to Pay arrangement will result in penalties.
For instance, Self Assessment penalties can include:
- Five percent of the outstanding tax, along with interest, if payment hasn't been made within 30 days.
- An additional five percent, plus interest, if payment hasn't been made after six months.
- Another five percent, along with interest, if payment hasn't been made after 12 months.
If you neglect to pay your tax, HMRC may take enforcement action to recover the money owed.
This could involve legal proceedings, seizing funds directly from your bank account or engaging the services of debt collection agencies.
Conclusion
A time to pay arrangement can be a valuable option for businesses that are struggling to meet their tax obligations. By spreading payments over a longer period of time, businesses can manage their cash flow and avoid harsh penalties and interest charges that come with late payment and missing the payment deadline. However, it is important to understand the principles and guidelines of TTP arrangements and negotiate with HMRC in good faith to ensure a successful agreement.
If a business fails to comply with the terms of the agreement, HMRC may terminate the arrangement and pursue legal action. Overall, TTP arrangements can provide a lifeline to businesses in financial difficulty and help them get back on track.
References
The primary sources for this article are listed below.
Details of our standards for producing accurate, unbiased content can be found in our editorial policy here.
Trusted Source – https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement
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FAQs
There isn't a maximum duration set for an arrangement. The repayment period will be determined based on the information you provide to ensure that your monthly instalments are set at a level you can realistically manage, allowing for a sustainable agreement throughout its entire term.
If they aren't persuaded that you're capable of fulfilling the payments, they won't consent to the payment scheme.
Similarly, if you've requested several payment plans in the past, there might eventually be a point at which they choose to stop offering them.
They're more likely to be accommodating if you've consistently been prompt and effective in your dealings with them, filed your returns on time, and responded to their letters without delay.
Before giving their approval, they'll invariably request an update on your financial circumstances, including any savings and assets you might have. The absence of either of these could also lead to a possible denial.
Yes. In certain situations such as:
- Failure to make payments
- Failure to submit tax returns
- Failure to comply with the terms of the agreement
Most inquiries by HMRC will typically start with a specific demand for information from you. This might also encompass a request to view particular documents, or possibly require you to respond to questions directly. If this doesn't offer the necessary clarity, or if doubts persist, HMRC may opt to visit your business location.
Typically, an investigation initially zeroes in on a single year, however, if HMRC suspects more widespread issues, they can broaden the scope of the investigation to encompass the past six years. Should there be an accusation of tax evasion, this timeframe can be expanded to cover the preceding 20 years.
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