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Time to Pay Arrangements with HMRC

In this current economic climate where cashflow is tight for so many, companies will often find themselves in the delicate balancing position of trying to pay the creditors that are vital for their continued trade, to the detriment of other creditors who may not shout as loud or as frequently.

As HMRC is unfortunately often seen as not vital to trading (although no doubt HMRC would disagree!), they are often pushed to the back of the queue until their position becomes urgent when there are limited funds to pay creditors.  However, HMRC as a creditor has additional enforcement powers that other creditors don’t have, and if they want to play hard ball, they can, and often do invoke these powers, including petitioning for a company’s liquidation, and issuing Personal Liability Notices to directors personally if they feel the circumstances merit it.  

A time to pay arrangement can give you some breathing space if your business owes money to HMRC. But if you fail to keep up with payments owed to HMRC there may be serious consequences for you and your business. Learn more in our time to pay arrangement guide.

What is a Time to Pay arrangement with HMRC?

A Time to Pay (TTP) arrangement is an agreement reached which allows a business an extended time to pay arrears of tax that is due.  The time agreed and the amounts to pay will need to be specified in the agreement, and will depend on how much is owed, and how much a company can pay to clear the arrears as soon as possible.

A Time to pay arrangement can be very beneficial in giving a business some breathing space when cashflow is tight, and can also have the effect of reducing penalties for late payment – depending on what is agreed.

A Time to Pay arrangement is only suitable for a business that is experiencing fairly short term cash flow problems however.  A company that has more serious problems should not enter into a TTP but should take more specific advice on their options regarding overall continued trading. At Harper James we have many years’ experience in advising companies in this position, and our insolvency and recovery solicitors are happy to have a chat if you find yourself looking to negotiate a time to pay arrangement.

What happens if you can’t make the agreed Time to Pay payments?

It goes without saying that it is very important that you agree a realistic TTP with HMRC to avoid this happening in the first place.  However, with the economy as it is, it is hard to predict cashflow with any great degree of certainty unfortunately, and inevitably there will be times when a company will just not be able to meet payments.

If this happens, it is vital that you get in touch with HMRC asap, and preferably before you actually breach the payment plan.  If it is just a temporary hiccup HMRC may well adjust the plan to take this into account.  However, you will have to show good reason why the plan is being breached, and be prepared to provide detailed financials to show how this has happened, and the plan for turning things around again in the very near future.

What can HMRC do if the Time to pay payments fail?

If HMRC are not satisfied that the plan will get back on track quickly, then they may well cancel the TTP arrangement, and may demand immediate repayment of all arrears.  If that is the case, and the business owes significant arrears, HMRC can come down very hard and may take whatever enforcement action is most appropriate – which can ultimately mean petitioning for the company’s liquidation.

While most creditors have to prove their debt via a court judgement or an unpaid statutory demand before commencing winding up proceedings, HMRC do not have to. They also have preferential creditor status for most corporate taxes now, meaning they jump the queue in any formal insolvency over most other creditors.

Personal Liability Notices

As mentioned, HMRC have specific powers to penalise company officers personally that they believe are involved in a deliberate policy of non-payment of National Insurance Contribution (NIC) debts owed to the Crown, or simply neglectful in meeting arrears.

Directors who have taken proper and reasonable steps to ensure that HMRC are not ignored are unlikely to be issued with Personal Liability Notice, but if HMRC carry out an investigation and find that there was a deliberate policy of failure to pay NIC then they may request outstanding amounts personally directly from company officers who were involved in this policy.  Failure to pay could lead to directors being targeted for bankruptcy themselves.

For this reason, if your company is having problems with cashflow, we strongly advise not to ignore HMRC, but to seek legal advice from an experienced insolvency solicitor who can help you reach an agreement for your arrears.

What can I do if I can’t pay arrears and fall behind in a Time to Pay arrangement?

If dealt with early enough, there are options for companies in this position.  If a new time to pay arrangement can’t be reached, then if there is a viable business that is just experiencing some temporary problems, it may be possible to obtain additional capital injection or loan funding to pay arrears.

Another alternative is to come to an arrangement with all of the company’s creditors.  If creditors can agree to proposals under a Company Voluntary Arrangement (CVA), including HMRC, then they will all be bound by such agreement as long as the terms are complied with. This can avoid winding up and pressing creditor threats, and allow a company to get back on track. Again, it is vital any agreement is realistic.  If you want more information on this process then contact one of our Recovery & Insolvency solicitors to discuss this further.

If there really is no viable option for the company going forward, then directors should take advice on their formal options from an insolvency lawyer or insolvency practitioner as early as possible. This will protect the company from further damage, and can protect the directors personally from any liability they may have when trading what is essentially an insolvent company. 

How can we help?

For more information on any of the above, or if your company is experiencing any sort of unwelcome creditor pressure, contact one of our Recovery and Insolvency solicitors today to consider the options that are available for your company, and how to protect the directors. Our team has many years’ experience advising companies in all circumstances and are happy to help.

About our expert

Eleanor Stephens

Eleanor Stephens

Senior Recovery & Insolvency Solicitor
Eleanor Stephens is a senior insolvency solicitor with over 20 years' specialist knowledge in all aspects of insolvency, both corporate and personal, covering contentious and non-contentious matters.

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