There are times in the life of every business where cash gets a bit tight and when the unexpected happens such as a big customer failing to pay or, even worse, goes bust it can mean that taxpayers simply can’t meet their tax bill when due.
A Time to Pay arrangement or TTP for short is an agreement made with HMRC that allows a taxpayer to take time (as the name suggests) to find the cash to meet their liability.
HMRC aren’t under any obligation to offer a TTP and it is up to the taxpayer to request the facility.
The first principle is to act quickly and ask for time to pay as soon as it becomes clear that cash flow is an issue.
Asking for a TTP once you are in deep trouble is never a smart move and being upfront as soon as you can is a sign that you are on the level.
It’s important also to remember that honesty is the best policy and being truthful helps a great deal. Be straightforward and complete in your answers as if HMRC find out later that you have kept information back then they are at liberty to cancel the arrangement.
HMRC won’t just agree automatically to allow you to pay in installments, they will need to see evidence that you have a genuine need to spread the load.
You’ll need to show that you have a real cash flow problem and not simply that you choose not to pay.
By the same token ,you’ll also have to show that you can afford to make the payments as there’s little point in HMRC making an agreement if it is clear that the money will never be received.
The starting point is to call the helpline and explain the issue. You’ll need to have your payment offer ready and although initially it will be dealt with over the phone you can expect to have to send in a formal offer in writing.
There are some particular points that it is important to bear in mind when applying for time to pay.
- There must be a specific reason why you are unable to pay – this can’t just be that you’ve found something better to do with the money.I t has to be as a result of an unforeseen issue such as the failure of a major debtor.
- The arrangement must be affordable – HMRC won’t agree if they don’t think you can make the payment.
- The business must be viable – there’s no point in allowing a failing business time to pay if the end result is still going to be liquidation.
- You must have a plan – you’ll need to be able to evidence the viability of your business and the cash flow that will cover the payments and these must be part of a realistic business plan.
- You need to ask in good time – don’t wait until you have people knocking on the door, phone the HMRC helpline as soon as you know you are in trouble.
- The TTP arrangement must be over the shortest reasonable time period to allow the exchequer to recover its money as soon as is practicable.
- Taxpayers with a good record are much more likely to get a favourable outcome – if you have always paid on time and aren’t in the habit of collecting penalties then it is more likely that an agreement can be reached.
- Typically this will be a fairly short term arrangement designed simply to allow the taxpayer to bring their affairs up to date. It’s likely to last for 12 months or less but in exceptional circumstances, it could last longer.
Advantages to a TTP arrangement
There are some fairly obvious advantages to agreeing time to pay with HMRC.
Firstly there won’t be any debt collection procedures from the taxman. As long as you continue with your payment plan then there will be no nasty knock at the door.
In addition to the lack of debt collection activity, the taxman will also not levy any penalties as long as the agreement is in place before the due date. It is true that interest will still be charged on the outstanding debt but this will be a small amount compared to some of the more stringent penalty charges.
Spreading the tax bill over a longer period will help the business to stabilise it’s affairs which is especially valuable if it has experienced a shock loss of a customer.
Probably the most appreciated advantage to a TTP is the peace of mind it brings. It gives the director or owner the chance to stop worrying about a large tax bill and to start to concentrate on their business.
Taxpayers that find themselves in cash flow difficulties shouldn’t bury their heads in the sand.
With the right approach and a little methodical preparation, a Time to Pay arrangement can be agreed with HMRC and this will give the business the breathing space it needs to ensure that it can go forward into a prosperous future.