When a business has cash flow problems or other financial problems, it may be unable to pay its debts to HM Revenue and Customs (HMRC) and other creditors. This situation can often be resolved if company directors act quickly, but the consequences of being unable to pay your debts can be very serious.
HMRC is one of the biggest creditors to UK businesses, and when an organisation cannot pay a debt to the tax authority, directors may be unsure of what to do. After all, most companies have relationships with their creditors that could allow them to negotiate new payment terms, but they do not have the same relationship with HMRC.
Thankfully, there is a mechanism called the HMRC Time to Pay Arrangement, through which businesses can pay a debt over a set period of time. Outstanding amounts are split into monthly instalments to make the debt more manageable, and in this way, the business can meet its tax obligations.
Here, the experts at Company Insolvency Advice explain how a Time to Pay Arrangement can make tax debts more manageable, the circumstances under which these types of payment plans may apply, and other things that businesses need to consider when it comes to their tax liabilities.
How to pay a debt to HMRC with a Time to Pay Arrangement
To secure a Time to Pay Arrangement, a business must make a proposal to HMRC. It must examine its financial circumstances and decide what it can afford to pay, as well as a reasonable period of time over which to do so. It is then up to HMRC whether to grant the proposal, refuse it, or negotiate different payment terms.
A Time to Pay Arrangement is valuable not only because it will enable the business to pay its debts; it can also halt any legal action being considered by HMRC against you. It will also prevent your business from accruing any late payment penalties (although this excludes any late payment penalty that has already been applied to your debt). Finally, it offers you a way through a period of financial difficulties.
While there are clear advantages to a Time to Pay agreement, it will not be possible to secure this type of payment plan in every case. It is important to act quickly in order to have the best chance to rescue your company and return to solvency, so you should seek immediate advice from an expert to determine whether or not this approach will work for you.
How to successfully negotiate a Time to Pay Arrangement with HMRC
The simplest way to ensure that your arrangement is approved successfully is to seek professional advice from an insolvency practitioner or other expert.
The key is to propose an amount that your business can afford to repay – after all, your problems will only worsen if you cannot make the agreed payments – but which also seems fair from HMRC’s perspective. If the repayment amount is too low, or spread over a longer period of time than is reasonable, the tax authority may decide to recover its debt through another method.
A professional can support you to calculate a suitable payment plan based on what you can afford to pay over time. The experts at Company Insolvency Advice have a lot of experience working with HMRC to secure Time to Pay Arrangements for clients, so we can help you to prepare an attractive and reasonable proposal. We offer a free initial consultation during which we can determine whether or not this approach will work for you. From there, we will discuss your company’s financial situation and propose a payment plan that will meet both your needs and those of HMRC.
Depending on how HMRC views your proposal, there may be a need to negotiate. We can handle this responsibility on your behalf and ensure that the final agreement is suitable for all parties, to secure the best possible payment arrangement for your organisation.
Can HMRC refuse a payment plan?
Yes. As we said above, HMRC can refuse a proposal to implement a Time to Pay Arrangement under certain circumstances, and there are other legal mechanisms through which the government body can reclaim any money it is owed.
Whether or not HMRC agrees to the arrangement will usually depend on how realistic the business’ proposal seems. The most important priority for the tax authority is to collect tax payments that businesses owe, and if a proposal for a Time to Pay Arrangement seems like the best way to achieve this, HMRC will often agree. The department is invested in ensuring that businesses make these payments, because if the business recovers from its difficult financial situation and recovers, HMRC will continue to collect tax revenues from the company.
Relevant considerations HMRC may make include:
- whether the monthly instalments seem appropriate
- whether the payment deadline is suitable
- the likelihood that the business will be able to make its payments
- the long-term viability of the business and its prospects of recovery
The most important thing to remember is that if your business tries to arrange a monthly payment plan, but HMRC does not believe that you will be able to make your tax repayments on time, it may decide to claim the money you owe through legal action or another approach. This is why it is so important to take care and be fair and realistic in preparing an HMRC Time to Pay proposal.
What if HMRC rejects the proposal?
HMRC has a number of mechanisms at its disposal to recover the tax money it is owed. If a payment plan is unrealistic or unfair, HMRC may instead decide to take legal action to recover a debt – this route is also open to other creditors, and is part of the reason that it is important to act quickly in response to debt problems.
Creditors can make a formal demand for payment, which represents a legal acknowledgement of the existence of the debt. If the debtor does not pay, the creditor may then pursue a winding up petition against the debtor. The final result of this can be that the business is forced into liquidation in order for the creditor to reclaim the money it is owed. Thankfully, in many cases you can avoid this outcome by seeking expert advice and acting quickly.
If you need support with corporate debts, cash flow problems or negotiations with HMRC, speak to Company Insolvency Advice today. Call us on 0800 999 0666 or use our online enquiry form to request a call back.