If you are self-employed and unable to pay your taxes on time, one possible option is negotiating a Time to Pay with HMRC.
Put simply, a Time to Pay arrangement or TTP is a debt repayment plan for your taxes agreed between you and HMRC.
So, if you are struggling to pay your taxes and need to negotiate a Time to Pay arrangement with HMRC, read on to find out how…
Time to Pay explained
HMRC are the biggest creditor in the UK - so if your business is struggling, a Time to Pay arrangement can be a really helpful way to negotiate with them. A TTP arrangement is a debt repayment plan for outstanding tax liabilities that is typically paid in monthly instalments over a period of up to 12 months. HRMC will consider TTP in respect of Corporation Tax, VAT, Income Tax, PAYE and NIC. The arrangement ensures that a taxpayer does not face late payment penalties, although interest will still be charged on the outstanding liability.
It’s also important to be aware that all other taxes must be paid when due or this arrangement will go into default.
When it could be right for you
If you have tax arrears that have accrued due to cash flow shortages, a Time to Pay arrangement could be the right solution for you. There are two main scenarios that could lead you to negotiating a Time to Pay with HMRC:
1. You become aware that you will be unable to pay a debt when it’s due
2. You miss a payment date and receive a payment demand
In both scenarios, it’s important to contact HMRC as soon as possible. However, you will only be considered for a TTP arrangement if HMRC is confident you’ll be able to make sufficient repayments over the agreed period and if there are no issues with your past payment history.
Time to Pay and the COVID-19 crisis
Due to the Coronavirus pandemic, HMRC has expanded its access to its Time to Pay scheme.
In addition, the existing HMRC Time to Pay scheme has been extended to give more companies a helping hand when it comes to managing their tax affairs, whilst sole traders will also be able to defer self-assessment payments due in July 2020 to January 2021 in order to gain some additional breathing space.
If your business has been affected by coronavirus, you may still also be able to claim a grant through the Self-Employment Income Support Scheme - or, for further advice about COVID-19 support for the self-employed, click here.
When you won’t be considered
The success of your application for a Time to Pay arrangement will be based on your previous payment history and how you have handled your tax affairs in the past. As a result, HMRC will not consider you for a TTP arrangement if you have:
- a history of late, overdue or incorrect tax returns
- not adhered to previous arrangements
- a lack of financial information to support your request
- overdrawn directors' accounts
- If you have had a TTP arrangement in the past this doesn’t necessarily preclude you, but it does make you less likely to be accepted.
What to do to prepare to negotiate your arrangement
Essentially, when applying for a Time to Pay arrangement, you need to persuade HMRC that your proposal is reasonable and that you have sufficient means to honour all your liabilities during the relevant period - not just the tax debt. As such, it’s important to be prepared.
For starters, you must have a convincing argument for why you can’t pay on time, and how you are going to pay them back during the agreement.
They will want to see evidence of your ongoing expenses, as well as projected income, and ultimately, they want to hear commitment and determination on your part to paying them back in full.
By being well-prepared for the phone call, you can ensure that you answer any questions quickly and speed up the process. You will need to know:
- appropriate reference numbers such as your 10-digit Unique Taxpayer Reference
- the total amount of the tax bill you are struggling to pay
- the reasons why you are unable to pay
- what you’ve done to try to raise money to pay
- your repayment offer, including how much you can pay upfront and how long you need to pay the rest
- your bank account details
In addition, you could also be asked to provide information about your income and expenditure, assets and your sales and cash flow forecasts.
During the call, the interviewer will also advise you of your rights and what penalties you might face if you don’t keep to the arrangement or if you falsify information. HMRC will then make their decision based on the information provided.
How much should I offer to pay?
The point of a TTP arrangement is for you to be able to pay back your tax liabilities - so it’s important to not be pressured into agreeing a monthly amount that you won’t be able to fulfil.
HMRC will have less confidence in you if you agree to pay a certain amount and then default a few months later, so it’s important to be honest about the amount you can afford to pay.
Before you make the call, you should spend some time making sure you will be able to afford the ongoing repayments. For further advice on this or if you are struggling to decide on an amount, contact McAlister & Co for help and guidance.
What to do if an agreement can’t be reached
If your offer is rejected, it might be because HMRC thinks that you can pay the full amount, in which case you will have to pay it immediately. In this situation, you should seek expert advice so you can explore all the other options available to you.
Remember, if an agreement cannot be reached or the debt is ignored, enforcement action will be taken - so it’s important to seek help from insolvency experts to determine your next steps and ensure this doesn’t happen.
What happens if I miss a payment?
HMRC’s flexibility will likely come to an abrupt end if you don’t keep up with your negotiated payment plan. If you fail to make payments in line with the agreed schedule, or if other due taxes are not paid, HMRC will cancel your arrangement and you may face additional penalties too.
This could eventually lead to severe legal actions, so it’s important to seek help as soon as possible.
What other options are available?
If you cannot reach a Time to Pay arrangement with HMRC, all is not lost. There are other options available that can help you get back on track and turn things around:
Individual Voluntary Arrangement
An IVA is a deal between an insolvent sole trader and its creditors. It is a formal procedure that was originally established as an alternative to bankruptcy, and for an individual with assets it is often considered the most suitable option because it offers protection over those assets.
An IVA is a legally binding contract that allows you to repay some or all of your debts from your future profits over a set period of time, usually between five and seven years. With an IVA, you only repay what you can afford and once the IVA period is complete, any remaining debt is written off.
HMRC do accept IVAs, but they usually have their own guidelines about the circumstances in which they’ll accept this, so it’s important to speak to an insolvency practitioner who can help you prepare a proposal for HMRC’s consideration.
Debt management plan
Another possible option that could help you to solve cash-flow problems and potentially help you find extra money to pay HMRC is a debt management plan.
From managing cash projections to anticipating costs and losses, by putting practical steps in place, you could solve cash-flow problems in the short term.
What’s more, putting a clear plan in place could also help to protect long-term prospects, whether this is by negotiating with creditors or sourcing emergency funding.
If you are struggling to put a plan in place, reach out to the experts. A licensed insolvency practitioner will look at every aspect of your business so they can put together a thorough plan to help you cut costs.
They will list who you owe money to, how much you owe each creditor, and whether your debts are priority or non-priority so you can put a practical plan in place to see where you can make savings.
Debt consolidation is essentially where you take out a new loan in order for existing debts to be covered. A positive of this is that it can simplify your repayment process and help reduce interest on any additional debts.
However, it could end up making the situation worse - so you should always consider this option strategically.
Debt relief order
A debt relief order is a low-cost alternative to bankruptcy that is suitable for individuals living in England or Wales with few assets (£1000 max worth) and minimal debt (less than £20,000).
If you are a sole trader who is struggling financially, a debt-relief order will freeze any interest and repayments for 12 months and after that period debts will be written off, which could give you the additional breathing space needed to make payments to HMRC.
How McAlister & Co can help
If you are self-employed and struggling to pay your tax liabilities, it’s important to contact HMRC as soon as possible. Whilst it might be tempting to bury your head in the sand, delaying these sorts of priority payments will only make the problem worse.
Remember, you don’t have to face financial difficulty alone. For any queries, guidance in dealing with outstanding payments or help negotiating a Time to Pay with HMRC, McAlister & Co are here to help.
Our dedicated team helps hundreds of sole traders every year, offering a number of procedures that can help to reduce your debt or give you a bit of temporary breathing space. So, don’t hesitate to reach out to our friendly, approachable team today for help and advice.