When a company starts to experience financial decline, it can be difficult to stay up-to-date with tax liabilities. This is particularly concerning for directors given the speed with which HMRC can close down businesses they believe are insolvent.
HMRC do offer a scheme that enables you to repay business tax arrears in instalments, however. This could help you get back on track, avoid the inevitable penalties applied when tax is paid late, and return to profitability.
Open communication with HMRC is essential when your business has cash flow problems, though. It may feel more natural to try to conceal the company’s issues, but HMRC is more likely to grant extra time to pay if you’re honest about the situation.
So what is Time to Pay, and might you be eligible for the scheme?
A Time to Pay arrangement grants you additional time to repay any tax arrears built up by your business. An arrangement can typically last for up to 12 months, although in some cases more time is negotiable.
A key element of Time to Pay is that you must continue to keep up with current tax liabilities alongside the new instalment plan. You also have to provide a solid business case to be accepted onto the scheme.
Essentially, HMRC need to believe that your company’s financial problems are temporary, and that you aren’t facing long-term issues that may lead to insolvency. The scheme incorporates the full range of business taxes, including VAT, PAYE, and corporation tax.
A key consideration is approaching HMRC quickly. This shows that you take your liabilities seriously and aren’t deliberately failing to pay.
It can be daunting to negotiate with HMRC without specialist advice and support, or insight into how the system works. The involvement of a licensed insolvency professional can instil confidence in the HMRC team, however, that your business is capable of repaying the TTP.
You need to formulate a strong business case to this effect stating why the company cannot afford to pay its tax, showing how extra cash to repay the arrears will be generated. This might involve cost cutting, for example, or securing alternative funding to boost working capital.
It can be a delicate balance between offering an amount the company can genuinely afford each month and making a proposal to repay in the shortest time possible. You must be able to complete the TTP successfully, as if it fails HMRC are likely to take winding up action.
Is your company experiencing long-term financial difficulties?
If so, HMRC may not agree a Time to Pay arrangement as they’re designed only for businesses with temporary cash flow problems.
Can you meet your current tax liabilities in full as well as repay the TTP?
This is a prerequisite of a Time to Pay arrangement, and you need to incorporate these payments into your cash flow forecasts and business plan proposal.
Have you experienced problems with HMRC in the past?
You may not be granted more time to pay if you’ve paid your company tax late before or failed to submit tax returns on time. HMRC may also refuse a TTP if you haven’t contacted them quickly enough.
Are you confident that you can negotiate successfully with HMRC?
It’s always advisable to seek professional support in this respect. A licensed IP understands HMRC’s requirements and systems, and crucially, can offer reassurance to the tax body that you can repay.
As we mentioned earlier, if a Time to Pay arrangement fails HMRC is likely to petition to wind up the company. This would result in enforced liquidation and a stringent investigation into why the company declined.
It’s far better to take the initiative yourself as a director and enter liquidation voluntarily if necessary. A licensed IP can assess the company’s viability for the future and if rescue isn’t possible, they’re likely to recommend Creditors’ Voluntary Liquidation (CVL).
UK Liquidators are insolvency and liquidation specialists and can quickly establish the viability of your company. Please get in touch with our partner-led team to arrange a free, same-day consultation.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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