If your business has fallen behind with tax payments, there’s a procedure in the UK that could help you get back on track. HMRC’s Time to Pay arrangement, or TTP, is an extremely useful fallback when you’re dealing with short-term financial difficulties.

HMRC take stringent measures against businesses they believe are deliberately avoiding payment, so it’s important to contact them quickly to explain your situation and demonstrate your resolve in paying the arrears.

So what exactly is a Time to Pay arrangement, and how does it work in practice?

What is a Time to Pay arrangement?

A Time to Pay arrangement is a payment plan that reschedules your unpaid liabilities to HMRC. It can help you control the reputational damage that sometimes occurs when you fall behind with these payments, and limit the financial penalties.

The payment plan typically lasts for up to 12 months, and relieves some of the pressure to pay this key creditor. The danger of not paying HMRC lies in their ability to close down businesses quickly if they suspect insolvency is a possibility.

The procedure may also be available if you know your business won’t be able to make an upcoming payment, so it’s important to make contact with HMRC as soon as you can.

Who is eligible for extra time to pay?

One of HMRC’s main concerns is whether or not you’re deliberately avoiding payment. They’ll also need to consider the possibility that your financial difficulties are long-term.

Understandably, they’re not likely to accept a business onto the scheme if it’s on the verge of insolvency, so one of the most important eligibility requirements is that your cash flow problems are temporary.

HMRC officers will also take other issues into account, including:

• Your previous history of filing and payment
• Whether you operate in a high-risk industry
• If you’ve been granted a TTP arrangement previously
• The strength of your argument for extra time to pay

It’s crucial to prepare and present a detailed case in favour of a TTP arrangement, including documentary evidence of your current situation, and how your business has reached this financial position.

Making a case for more time to pay

When you apply for a Time to Pay arrangement you’ll need to provide:

• Sales and cash flow forecasts for at least six months
• A detailed explanation of the circumstances that led to your inability to pay
• Your plans for repayment – how you’ll cut costs, for example, or increase turnover
• A clear statement of determination to pay your tax liabilities

It’s a good idea to seek professional help when preparing a Time to Pay application, whether from your accountant or a licensed insolvency practitioner (IP). You need to be sure that your business can afford the repayments for the entire period, as failure in this respect has severe ramifications.

HMRC are likely to want the arrears repaid as soon as possible, which is understandable from their point of view. Over-promising on payment simply to encourage acceptance, though, can lead to even more problems for your business.

Communications with HMRC can be intimidating, which is why professional involvement can be helpful to you. It also offers HMRC more confidence that you can repay, given that a professional assessment of your business has been made.

What happens when a TTP fails?

If a Time to Pay arrangement is granted but you fail to keep up repayments, HMRC are likely to take enforcement action. Payments are taken by direct debit so they’ll leave your bank account on a specific date each month, and you won’t be able to stop them without cancelling the arrangement.

If a payment is returned due to lack of funds it can mean the arrangement collapses, followed by a demand for the full amount outstanding. If you can’t pay, HMRC will take enforcement action, which may involve closing down your business.

It’s also important to bear in mind that you need to keep up with all your current HMRC liabilities at the same time as repaying the arrears, so these amounts should be incorporated into your original proposal.

What are the advantages and disadvantages of a TTP?

Advantages

• You can use a Time to Pay arrangement for various HMRC liabilities, including corporation tax, PAYE, and VAT
• A TTP helps you avoid formal insolvency
• It offers a break from HMRC pressure
• You can avoid or limit the financial penalties that HMRC imposes
• Cash flow becomes easier to manage on a day-to-day basis

Disadvantages

• You must still pay interest on unpaid tax
• Your industry can affect whether or not HMRC accepts your application
• If a TTP payment is made late, the arrangement could collapse
• HMRC enforcement action can threaten the existence of your business

Why you need to take care if you have tax debts

One of the key issues when you have arrears with HMRC is the speed with which they can enforce the debt. They don’t have to obtain a court order or follow the strict system of debt recovery that exists in the UK for some other creditors.

HMRC is an involuntary creditor – in other words, they have no choice about who they deal with. They can’t refuse to associate with an individual or business because that person or entity has a checkered financial past.

This, and the fact that HMRC can identify late payers very quickly, brings significant risk for businesses that are behind with their tax payments – a problem compounded if previous issues of late filing or payment are evident.

Essentially, if HMRC believes your financial problems aren’t transitory they could close your business down. It’s highly advisable, therefore, to keep an eye on cash flow and contact them quickly if you think you might go into arrears.