In the current climate, it’s hardly surprising that accountants across the country are taking calls from clients who are worried about how they will pay their tax bills. The incomes of businesses across a wide range of industries have fallen, while tax payments for previous and more lucrative periods need to be paid.
That has left many in a cash flow crunch. And, while the government’s package of support for businesses impacted by the coronavirus has allowed the deferment of VAT and self-assessment income tax payments, for many businesses, that’s simply not enough.
So, what support is there for businesses with outstanding tax liabilities that they just can’t pay? Fortunately, the HMRC’s Time to Pay service has been scaled up, with the introduction of a dedicated helpline that’s manned by more than 2,000 staff. That can allow businesses and the self-employed to spread the cost of their outstanding tax payments over an agreed period.
But how do you go about negotiating a Time to Pay Arrangement with HMRC? Here’s our guide.
- Think about the type of support you need
Currently, due to the additional support provided for businesses impacted by the coronavirus, there are two different types of Time to Pay Arrangement available.
- If you cannot make an upcoming tax payment because of the coronavirus, you should call the dedicated HMRC Covid-19 helpline. You will reach a special Time to Pay department set up specifically to help support businesses through the coronavirus by allowing the deferment of tax payments for a maximum of three months. You will be advised to pay what you can during that period and interest will be payable on the outstanding liability. With VAT and income tax payment deferral schemes already available, this is suited to businesses that are struggling to pay their current or next corporation tax or PAYE bill.
- Alternatively, rather than asking for a deferment, you could call HMRC’s Debt Management and Banking Department on 0300 200 3887. This is the department that makes instalment arrangements, which could allow you to pay your outstanding tax bills in monthly instalments over a typical period of 6-12 months. If you know that you will be able to make the payments and can put a compelling case forward to HMRC, you could be able to agree a Time to Pay Arrangement with no penalties being levied.
- Negotiating an instalment arrangement with HMRC
An application to defer your business tax payments under the Covid-19 specific support will not usually be refused. However, if you want to pay your outstanding tax liabilities in instalments, you will have to negotiate with HMRC. This can be done over the phone or in writing. You will need to put forward your case explaining why you cannot make the payments and provide a realistic monthly payment offer that is supported by cash flow statements.
HMRC will only agree to a Time to Pay Arrangement if it’s clear that you cannot afford to make the payment in full and it is confident that you will be able to make the monthly repayments. That’s why you must propose a monthly payment amount that you can realistically afford.
- Are you eligible for a Time to Pay Arrangement?
You will not usually be eligible for a Time to Pay Arrangement if:
- You have a history or incorrect tax returns or late tax payments
- You’ve had a previous Time to Pay Arrangement that you did not adhere to
- You do not provide sufficient financial information to support your proposals
- You have an overdrawn director’s loan account
If you already have a Time to Pay Arrangement to cover outstanding liabilities but are still struggling to pay tax bills as they arise, another scheme would not usually be considered. However, under the new rules brought in for the coronavirus, you may be able to apply to defer your monthly direct debit payments for up to three months.
- Information you’ll need before contacting HMRC
To stand the best possible chance of making a Time to Pay Arrangement with HMRC, you must be well-prepared before you pick up the phone. You should make sure you have:
- Your 10-digit unique taxpayer reference or VAT reference number
- The reasons for your inability to pay
- The steps you’ve taken to try to make the payment
- The total amount you’re unable to pay
- Your bank account details
- Details of how much you can pay upfront and how long you’ll need to pay the balance
The interviewer may also ask you questions about different aspects of your business’s finances, including your income and expenditure, your sales projections and cash flow forecasts for the next six months. If the interviewer thinks that you can afford to pay the overdue tax, they will ask you to do so there and then. If HMRC agrees that you cannot pay your outstanding tax bills now but will be able to if given more time, you will usually be granted a Time to Pay Arrangement.
There are other alternatives you can explore
If you’re struggling to make tax payments and pay other bills, a Time to Pay Arrangement is not the only option available to you. Tony Smith, the director of Company Debt, believes there are other routes struggling businesses can take: “If the company’s financial problems centre around outstanding HMRC tax debt, a Time to Pay Arrangement could make all the difference, but it’s rare that HMRC is the only creditor a business is unable to pay.
“If you have large debts and other creditors such as suppliers and commercial lenders, holding informal negotiations with your creditors or entering into a company voluntary arrangement could be more suitable alternatives to explore”.
