Covid-19: Time to pay – breathing space

Providing breathing space for your business during the Coronavirus (COVID-19)

During the recent Budget, the Chancellor announced help for businesses struggling because of the Coronavirus.

One of the key announcements made by the Chancellor was that the government will ensure that businesses and self-employed individuals in financial distress and with outstanding tax liabilities receive support with their tax affairs.

HMRC has set up a dedicated COVID-19 helpline to help those in need. To ensure ongoing support, HMRC have made a further 2,000 experienced call handlers available to support firms when needed.

The number for HMRC’s dedicated helpline is 0800 0241 222.

Our experience so far is that the helpline is busy, so you may need to be prepared to be on hold for a while, you will also need details of your tax references for the business for which you are seeking a deferral.

What is Time to Pay?

Time To Pay arrangement is an instalment plan agreed with HMRC that allows businesses to temporarily bridge financial difficulties in paying their tax on time.

Time to pay arrangements allow businesses to spread payment of outstanding tax liabilities over a period of normally 3-6 months and exceptionally may allow up to 12+ months.

It is hoped that given the unprecedented circumstances facing businesses in light of COVID-19 and the as yet indeterminate timescales of the impact of CODVID-19 that HMRC will make 12 month Time to Pay arrangements more readily accessible to businesses.

Unfortunately, as demonstrated during the 2008 financial crisis, the wider use of Time to Pay was necessitated more by the volume of impacted businesses rather than necessarily a ‘relaxing’ in the eligibility conditions by HMRC.

Basic conditions

HMRC only allow Time To Pay where businesses meets the following conditions:

  • The business cannot pay in full by the due date;
  • The business has the means to make the agreed payments;
  • The business has the means to pay other liabilities that fall due during the Time To Pay period,; and
  • The Time To Pay period is as short as possible.

Liabilities do not have to be due before agreeing a Time To Pay and is often better to proactively approach HMRC before the due date, not least as this may prevent late payment penalties default surcharges and interest, particular where events of national significance have occurred such as COVID 19.

As a condition of Time To Pay HMRC expect businesses requesting Time To Pay to:

  • Disclose all of their HMRC debts and relevant facts;
  • Be honest when requesting Time To Pay;
  • Make agreed instalment payments on time;
  • Disclosure of any change in financial circumstances during Time To Pay period;
  • File all future HMRC returns on time (and paid on time where not included in Time To Pay or added by HMRC agreement).

What does HMRC consider?

  • Whether a business ‘can’t pay’ or is a ‘won’t pay’;
  • What has a business done to raise money through normal commercial means before approaching HMRC for a TTP;
  • Previous compliance history and previous Time To Pay history;
  • Whether there are outstanding returns;
  • Ongoing viability of the business;
  • Assets held and which could be realised to pay debts.

Time to Pay arrangements are bespoke agreements and the level of information required by HMRC is determined by the individual circumstances and risk to the Exchequer, however broadly the larger the Time To Pay amount requested and the longer the Time To Pay period the more information and evidence HMRC is likely to request.

The information HMRC may request can include:

  • Detailed Income and Expenditure information
  • Cashflow Projections
  • Management Accounts
  • Bank Letters
  • Profit and Loss forecasts
  • For cases above £1m HMRC may ask businesses to engage, at their own expense, a suitably qualified professional adviser to carry out an independent review of a business to help HMRC decide whether to accept or reject a Time To Pay.

Summary

Businesses need to proactively make use of Time To Pay where available to improve cashflow and act now if they have financial difficulties in paying upcoming tax liabilities.

Whilst the recently announced Business Interruption Loan Scheme will assist many businesses by providing much needed liquidity through loans, by agreeing a Time To Pay businesses may be able to reduce the need to fund cashflow through borrowings.

Businesses should start getting ready for Time To Pay applications now, even where immediate tax liabilities can be paid as we are in a very fluid economic situation and gathering the required information may take time.

Get in touch

Business are often daunted by approaching HMRC and dealing with HMRC pushback. We are experienced in with dealing with HMRC and Time To Pay and can offer tailored advice to help support our clients in these difficult times.

Getting Time To Pay can hinge on presentation of information, gathering suitable evidence and negotiation skills.

If you need any support with approaching HMRC or help considering the wider impacts and implications of Time to Pay, please contact us.

A version of this blog originally appeared on the website of MHA member firm, MHA Tait Walker.