How it’s possible to be given time to pay HMRC, under certain circumstances.

HMRC understands that companies can suffer temporary cash flow problems, and in certain circumstances, is able to offer a lifeline with a time to pay (TTP) arrangement. This allows payments to be made over an extended period of time.

HMRC is known to act decisively when dealing with non-payment or late payment of tax, and will often levy distraint or present a winding up petition relatively quickly. So this type of arrangement can be a lifeline for struggling companies, particularly those with a previously good record of payment.

If your company is experiencing financial issues, a TTP could save you from legal action and formal insolvency procedures, also helping to avoid surcharges and other financial penalties.

What is TTP?

A TTP arrangement is intended to provide breathing space for companies in financial distress, but it is only offered under certain circumstances. If your business is fundamentally viable but is struggling to maintain positive cash flow, perhaps due to temporary operational issues, you may be able to negotiate an extended period to pay your tax liabilities.

TTP arrangements only cover arrears of corporation tax, VAT and PAYE, however, so you will need to keep your current payments up to date. It is important to contact HMRC as soon as you know that you will not be able to pay – in other words, do not wait for them to contact you once the payment deadline has passed.

The duration of a TTP is generally three to six months, but longer periods may be negotiable.

Negotiating a TTP arrangement

HMRC will want to see evidence that you can maintain a new arrangement, and you should aim to prepare detailed forecasts of sales and company cash flow for the next six months. You should also consider ways to cut your operational costs and demonstrate commitment to paying off the arrears.

HMRC will want to limit the time to repay, so they can recover the money quickly. This means that there is a danger that they could ask for payments that the company cannot sustain, so it is vital that the agreed amounts are affordable. If the agreement is breached at any stage by late or non-payment, it will lead to enforcement action being taken against your company.

Once you have an idea of how much you could afford to pay, and can produce supporting documentary evidence, you should call HMRC’s Business Payment Support Service (BPSS) to open negotiations.

What considerations will HMRC make when coming to a decision?

Various aspects of your case and situation will be taken into account by HMRC, including:

• The general level of risk posed by your industry – they may not be willing to agree a TTP if you operate in a high-risk industry.
• Your company’s previous record of payment and compliance with HMRC requirements.
• How quickly you have communicated the company’s financial problems.
• The circumstances surrounding your inability to pay – HMRC will want to confirm that you are experiencing a temporary setback, and are not on the verge of insolvency.

It is a good idea to seek help when negotiating a TTP arrangement, as a professional will have greater understanding of how HMRC operates, and the criteria that needs to be met for a successful outcome.

What are the consequences of a failed TTP?

Even if negotiations are successful, there is always the potential for your company’s circumstances to change. This could be the result of external influences that are out of your control, but any altered circumstances may render your company ineligible for a TTP, and therefore at risk of it being withdrawn.

Failing to make repayments in full and on time will also have serious consequences in relation to the new agreement. It is likely that full payment will be demanded following such a breach, with enforcement action quickly being taken, as HMRC doesn’t need a court order in this respect.

Your company could be forced into liquidation very quickly if alternative sources of finance have already been exhausted. If a TTP fails, it is imperative to seek professional insolvency advice quickly, as there may be other routes available, such as selling assets or entering into a formal insolvency procedure.

About the author

Keith Tully is a corporate restructuring and business advisory specialist at Real Business Rescue, which is part of Begbies Traynor Group. Keith has more than 25 years' experience of advising company directors and stakeholders.