5 Top Tips for Achieving a Successful Time to Pay Arrangement
The start of the year can often be a difficult time for companies as they struggle with erratic trading or reduced sales through the winter period. This can result in a VAT quarterly payment or PAYE/NI contributions being missed.
Taxes should be paid when they fall due, however if there are arrears, HMRC will usually agree a payment arrangement, known as Time to Pay Arrangement (TTPA) in order to clear any arrears. Such arrangements allow tax arrears to be collected in a cost effective way, normally over a period of up to 12 months.
Here are 5 top tips to help you and your clients achieve the best outcome with HMRC:
- The process and criteria for getting agreement to a TTPA can vary substantially. In some cases, an Arrangement can be set up very quickly via telephone, whilst in others, it may be necessary to submit financial forecasts or recent bank statements, before HMRC agree to a TTPA. Generally, if the accrued debt covers several months, or the business has a history of non-compliance with HMRC, then it is likely that more financial information will be required. Be prepared to submit up to date financial figures, a summary of what has gone wrong and what has been done to address it.
- Interest may be payable whilst the debt is being paid off. Unlike VAT, where a surcharge is applied when the payment is missed, Corporation Tax and PAYE/NI liabilities will accrue interest on a daily basis, even after a TTPA has been agreed. Any TTPA should seek to clear these interest bearing debts first to reduce the overall cost.
- TTPAs come with strict conditions. It will be a condition of the TTPA that all future liabilities to HMRC are paid on time – failure to do this will cause the TTPA to fail, even if payments into the TTPA itself are up to date. Also, HMRC’s general policy is that a company only has one opportunity to complete a TTPA, although HMRC may consider a further TTPA in exceptional circumstances.
- Only offer to pay what you can afford. Clients are often tempted, or required, to put forward proposals that in reality they cannot afford. Unless the business is introducing additional money (through a loan for example) the general rule is that historical debts must be paid out of future profits. As a simple example – a company making £30,000 annual profits would likely be able to pay around £2,500 per month into any TTPA. However, it is important to consider the impact of seasonality on the business, since a fixed monthly payment may not be suitable. If in doubt, produce a monthly cash flow forecast in order to make the most accurate assessment of what monies might be available each month.
- HMRC will not consider settlement offers. Under no circumstances will HMRC write off any of the amount owed, or consider a settlement, as part of the TTPA – the debt will always need to be repaid in full plus interest where applicable. A settlement offer will only be considered as part of a fomal insolvency solution, such as a Company Voluntary Arrangement (CVA).
Clients can negotiate a TTPA directly with HMRC. However in more complex cases, the assistance of an experienced intermediary, such as a Licenced Insolvency Practitioner, could be beneficial.
Where it is not possible to come to a TTPA with HMRC, or if the business has other debts, then it is advisable to consider more formal solutions.