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In light of the current situation, businesses and individuals may need to make use of Time to Pay arrangements (TTP) to defer payment of tax bills. The Government put this forward as one of the measures to help businesses in the Budget 2020.
As a TTP simply defers the tax liability and income lost by businesses due to Coronavirus, it is unlikely to be made up once the virus is contained. Therefore, at a later date businesses will have to deal with paying current and historic debts to HMRC which could be problematic.
A TTP only applies to HMRC debts, so whilst it would free up some funds to pay staff or creditors, it will not protect a business from any other creditor taking enforcement action. Creditors who may themselves be struggling financially may not be as sympathetic as HMRC, who has announced further measures to assist businesses, including the deferral of the next quarterly VAT payments due, self-assessment payments on account and the Coronavirus Job Retention Scheme, more details of which can be found here.
Our Business Recovery team can advise on further options should a TTP be insufficient for the needs of your business, or we may be able to help with identifying grant funding or bank funding.
WHAT IS TIME TO PAY?
Where you are unable to pay your tax bill in full by the due date, HMRC can use its discretion to allow you to pay over a period of time.
A TTP arrangement would normally only be agreed with HMRC if they are satisfied that you cannot pay the liability on the actual due date and that you will have the means to pay the taxes included in the TTP arrangement in the future. This would be over an agreed period, as well as any other tax liabilities becoming due during this period.
HOW TO CONTACT
HMRC have scaled up their support in this area, having set up an additional helpline to support businesses who are concerned about not being able to pay their tax due to the Coronavirus, being 0800 024 1222.
From colleagues’ discussions with clients, we are aware that these lines are busy at present, with quieter times typically being early morning and in the evening.
Debts of more that £100,000 will likely need to be referred internally within HMRC.
WHEN SPEAKING TO HMRC
You might be asked for various information, including:
- Your reference number (for example, your 10-digit Unique Taxpayer Reference or VAT reference number)
- The amount of the tax bill that they are finding difficult to pay and the reasons why
- What you’ve done to try to get the money to pay the bill
- How much you can pay immediately and how long you may need to pay the rest
- Your bank account details
- Your income and expenditure
- Your assets, like savings and investments
- What you’re doing to get tax payments back in order
Although we are hearing reports from clients that HMRC questioning is less robust than prior experiences.
When speaking to HMRC they will discuss your specific circumstances, exploring:
- Agreeing an instalment or TTP agreement
- Suspending debt collection proceedings
- Cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately
TIPS FOR CORRESPONDING WITH HMRC
- Ensure returns are up to date, HMRC are more likely to be amenable to agreeing a TTP or other arrangement in place with the liability being established
- It is advisable to be proactive once returns are submitted and contact HMRC in advance of a payment due date. It is suggested 7-14 days in advance might be a reasonable timeframe.
- HMRC are likely to ask a number of questions to ascertain the position of the business, what is being done to help turn the situation around and to understand the prospect of settling liabilities in the future.
- Where possible, cashflow forecasts / budgets and a statement of assets and liabilities would be useful to have available to help answer any questions, while also demonstrating the need for a TTP and ability to pay in the future.
- Try to obtain a sufficient period for the TTP to allow for repayments to be made as these might be cancelled if broken. Timeframes are on a case by case basis, with HMRC debt management authorised to extend time to pay periods of up to 12 months. Longer periods might be possible but would likely be escalated to senior HMRC staff.
- As part of a TTP agreement, it is expected that future tax liabilities are paid in full as they fall due. New debts which cannot be paid would need to be renegotiated with HMRC, although historically there has been reluctance to agree to numerous requests. Similarly HMRC might be reluctant to agree to a TTP where there are existing tax debts.
- Where a business is having difficulty in settling their tax liabilities, HMRC will need to be persuaded that all reasonable steps have been taken to cut costs and other creditors are also being asked to take delayed terms, so have something to say about this
ADDITIONAL GUIDANCE FOR VAT RETURNS
Whilst there are measures to defer the payment of businesses’ next VAT liability, it is worth highlighting for post deferment that you should:
- Submit your VAT return on time, even if you do not think you can pay the full amount
- Phone HMRC TTP teams before the payment due date, but after the return has been submitted, and request TTP (even if you do not propose or agree a payment plan at this time) to avoid a Default Surcharge
- Make sure a note is retained of the HMRC officer’s name, time of call and keep a written record of the outcome
- If you cannot get through by phone, send a written request before the payment due date
- If TTP is agreed confirm with HMRC that any Default Surcharge will not be issued
- If only a part payment can be made on time, it is still important to request TTP before the payment due date for the remaining amount
- If incorrect VAT returns are submitted to help with cash flow, HMRC will view this as a deliberate error and penalties would be charged accordingly, potentially up to 100% of the under declared VAT. Always submit a true and accurate return even if payment cannot be made
- It is possible to request credits on other taxes to be set against VAT amounts due. However, this would have to be requested from HMRC who are usually reluctant to off-set debts and credits and this would normally require the request to be in writing, however under current circumstances a phone call is recommended
If you fail to reach an agreement with HMRC, it would be advisable to make a goodwill payment now, showing a willingness to pay might delay enforcement action, and to request that penalties and surcharges are not assessed, something which the helpline page suggests will be explored.
Time will tell how amenable HMRC are with TTP arrangements under the current circumstances, however in view of reluctance to agree to repeated TTP requests historically, coming away without a TTP agreement might be better in some cases than to have agreed to an arrangement which the business cannot afford.
Before the VAT payment deferral was announced, we did have a client receiving a 3 month ‘payment holiday’ on PAYE due on 22 March, along with the possibility of further months and VAT for the upcoming quarter. No projections were supplied in this instance and the message was to get in touch in 3 months’ time if there are further issues. Hopefully this early example, and the recently announced measures highlight the sympathy and relaxing of policy by HMRC.
We have provided further guidance on business support available on our https://www.pkf-francisclark.co.uk/coronavirus-help-support-for-businesses/ page, which will be updated with new information regularly for businesses to consider actions to be taken to manage the current situation.