HM Revenue and Customs (HMRC) is the UK’s largest business creditor. Every business must pay taxes to HMRC, and it’s easy to end up in a position where you owe money to the tax authority that you cannot afford to pay. This can happen for any number of reasons: for example, cash flow challenges may leave you without enough liquid assets to cover your debt. Failing to pay your tax bill when it is due can have very serious consequences for your business, but thankfully, there are options that can help.
The team at Company Insolvency Advice has a wealth of experience in advising businesses that are struggling with HMRC debts or other liabilities. The most common way to resolve a tax debt with HMRC is a Time to Pay Arrangement, and provided you act as soon as you notice a problem, this might be an available option that could alleviate the pressure you are under. Once in place, this agreement halts any legal action against you by HMRC, meaning that it can be a vital lifeline.
However, it is important to act as soon as you notice a problem. If you are reaching the end of your tax year and are unsure how you will pay your tax bill, get in touch with our team today by calling 0800 999 0666 or using our online enquiry form.
In this guide, the experts at Company Insolvency Advice explain how a Time to Pay Arrangement works and how businesses can try to secure one to show that there is hope and a possibility for recovery during this process. We will also discuss some of the consequences businesses might face if they cannot pay off their HMRC debt, which demonstrate the need for urgent action when a cash flow problem arises.
How does a Time to Pay Arrangement work?
A Time to Pay Arrangement is a payment plan agreed between a business and HM Revenue and Customs. A company that cannot pay an HMRC debt issues a proposal outlining how much it can afford to pay, and over what period of time the debt will be fully paid off. This proposal is submitted to HMRC, and if the tax authority is satisfied with the payment plan, it will accept the proposal or, in some cases, negotiate over the details.
Once the arrangement is in place, it halts any legal action against you by HMRC, provided you stick to the terms of the plan and make your payments on time. As such, this can be a vital way to avoid the more serious legal consequences of failing to pay HMRC. Debt management plans can give your business the space it needs to recover from cash flow issues and return to a more comfortable financial position.
You must make sure that all filing returns are up to date and your current payments are made once the Time to Pay Arrangement has been implemented.
The tax authority has a strong incentive to agree to a proposal, provided it meets certain minimum conditions. After all, if your business recovers from its difficult financial position, it will continue to generate revenue for HMRC. There are other approaches the organisation can use to recover debts it is owed – for example, by taking legal action to have the business in question shut down – but the easiest approach is to agree on a Time to Pay Arrangement.
It is important to seek professional advice when planning to propose a Time to Pay Arrangement. Any payment arrangement you propose must be realistic in terms of your ability to pay, and fair to HMRC. This can be a difficult balance to strike. An expert can look at your financial circumstances in detail, evaluate how much you can reasonably pay and over what period, and help you to strike a balance. They can also advise you on whether or not a Time to Pay Arrangement is a realistic option – if your debt is with a debt collection agency or HMRC is deep into legal proceedings to recover the money you owe, the time to negotiate payments may have passed. This is why it’s important to act quickly.
Even if you fear it’s too late to put a Time to Pay Arrangement in place, speak to a member of our team about your situation and we’ll be able to help. There are often solutions available that company directors haven’t considered, and we can point you towards the options that are still on the table. If you aim to propose a Time to Pay Arrangement, our team is experienced in working with HMRC to negotiate payments and agree proposals.
What are the most common types of HMRC debts owed by businesses?
A Time to Pay Arrangement will not be a suitable option for every type of debt – it can only be used for an HMRC debt, and other types of debts owed to private creditors require a different approach. A similar mechanism exists for other business debts, called a Company Voluntary Arrangement. However, because this is a separate mechanism, it may be helpful to know what some of the most common business taxes are in planning your next steps.
Some of the most common HMRC tax debts we advise on include:
- Corporation Tax: payable on profits for limited companies. An unpaid Corporation Tax bill may also include interest and fees.
- Value Added Tax (VAT): collected on the sale of goods and services.
- Pay As You Earn (PAYE): businesses with employees deduct income tax and National Insurance contributions from wages and pass these on to HMRC.
- National Insurance Contributions: employers also owe National Insurance contributions, both for themselves (if they draw a salary) and on behalf of their employees.
- Self-Assessment Tax: for sole traders and partnerships, self-assessment tax returns must be submitted, and any owed income tax and National Insurance must be paid.
- Capital Gains Tax: if a business sells an asset for more than it costs to buy, it may owe capital gains tax on the profit. This often applies to property, shares, or valuable assets like art.
- Construction Industry Scheme (CIS) Deductions: contractors in the construction industry must deduct money from subcontractors’ payments and pass it on to HMRC.
- Late Payment Penalties and Interest: if the business misses tax payment deadlines, it may owe additional amounts in penalties and interest.
Because of the risk of accruing penalties for late payment and building up interest on your tax debt – which can make it much harder to properly pay off – it’s vital to act quickly. Contact our team today to discuss Income Tax arrears, PAYE or VAT arrears, or any other tax challenges you are facing.
What happens to businesses if they can’t pay?
HMRC is known for being stringent in collecting taxes owed to it. The tax authority offers options to help businesses facing financial difficulties, but it also has a number of strategies it can employ to collect its debts.
If a business fails to pay and doesn’t secure a Time to Pay Arrangement, HMRC may take enforcement action. In serious cases, this can include seizing assets, issuing a winding-up petition to close the business, or taking the business to court to claim the money owed. In certain cases, HMRC can also issue a Personal Liability Notice to transfer the liability of the company’s unpaid National Insurance contributions to the directors, making them personally liable for the debt.
Needless to say, any of these consequences can be extremely dire for both your future and that of your business. Putting a Time to Pay Arrangement in place is the best way to avoid what can otherwise become a complicated legal matter.
Call Company Insolvency Advice today on 0800 999 0666 or use our online enquiry form to learn how we can help your business recover from tax arrears, and give you the best chance to return to good financial health.