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Published on 22 October 2010 by Tony Groom

Managing Tax Payments With Time To Pay Arrangements

There are hundreds of thousands of businesses struggling to meet their financial

obligations to the Exchequer.

Businesses, especially smaller enterprises, have been reporting that in the current

difficult economic climate they are struggling with cash flow issues as customers and

suppliers try to stretch out the time they take to pay invoices. That means they may

not have enough liquidity to pay the tax they owe.

While the majority of these tax monies are repaid, the HMRC (Her Majesty’s Revenue

& Customs) has reported that 10% of expected revenues are outstanding.

The UK’s Time to Pay (TTP) scheme was introduced in 2008 and allows businesses to

pay overdue tax bills over a certain period of time. The scheme is administered by

the Businesses Payment Support Service.

According to the HMRC website, arrangements are tailored to the ability of the

customer to pay and are typically for a few months although they can be longer.

TTPs lasting longer than a year are only agreed in exceptional cases. Most

arrangements involve regular monthly payments being made but in exceptional

cases may involve a short period of deferral.

HMRC decides on a case-by-case basis which businesses are eligible for the scheme.

One of the main considerations is long-term viability.

In its March 2010 budget the previous UK government announced that all businesses

seeking a TTP of £1m or more would need to pay for an Independent Business Review

(IBR) to be carried out by an approved firm, normally an insolvency practitioner.

A total of 13 firms have been approved by HMRC to carry out IBRs that are intended

to establish whether the business can pay back their deferred tax bill.

K2 Business Rescue The Emergency Service for Business

Call Tony Groom on 0844 8040 540

When the restructuring plans are ready, a business rescue adviser would normally

expect to bring in an HMRC approved firm that they already know. The IBR would

assess the company’s ability to eventually pay back any tax deferred by HMRC

based on a review the proposals prepared by the adviser. These would be prepared

with view to demonstrating a viable business.

A statement from HMRC said the outsourced process was subject to regular six

month reviews and inclusion was not "permanent", but non-selection of a firm would

not rule them out in future. The next review is due to take place in the autumn of

2010.

The most recent statistics issued by HMRC are from March 2010 when it was revealed

that 300,000 businesses have entered Time to Pay arrangements with HMRC since the

end of 2008, deferring at least £5.2bn in business taxes. That equates to an average

of 4,500 a week.

HMRC is reviewing the release of statistical information on Time to Pay (TTP)

arrangements. While HMRC is reviewing its position, it has postponed the release of

any TTP data.

Concerns have been raised that it is getting tougher to join the scheme, and there

have been some predictions that it would eventually have to close.

An article in Accountancy Age earlier in August 2010 suggested that the recent

blackout of information could be a sign the taxman is tightening up on its previously

relaxed admittance policy to TTP schemes.

Earlier in the year the same publication reported that HMRC had knocked back

twice the number of Time to Pay applications compared to last year.

Although TTP will be available to companies until 2015, it suggested that HMRC may

be reducing the length of time TTPs run. It could bring many schemes down to less

than 12 months where previously schemes were much longer. It could also reduce

the number of businesses approved

However HMRC has insisted the TTP is still available and the eligibility criteria have not

changed. The UK Coalition Government’s Business Secretary Vince Cable, speaking

at a recent Institute of Directors event, reinforced this by saying that his department’s

instructions to HMRC was to still make it “easy” for applicants to agree TTP

arrangements.

There have been suggestions that a significant number of enterprises that are

receiving help under these emergency rescue schemes may actually be sleep

walking into insolvency, with trading partners unaware of the true scale of their

customers’ liabilities.

Even for a smaller business it is advisable to set up a TTP only after a thorough

business review with the help of a business rescue adviser, who will look at the whole

business in depth to establish whether it is viable and identify any underlying

K2 Business Rescue The Emergency Service for Business

Call Tony Groom on 0844 8040 540

weaknesses, assess the accounts and advise on any restructuring that may be

needed.

Then the business will be confident that it has the resources to stick to the TTP the

arrangement that it then negotiates with the Revenue.

We are not Insolvency Practitioners. We operate within the law to protect our clients and their wealth. Our team has worked for over 20 years to help stabilise and return hundreds of businesses to profitable growth. Once appointed, Insolvency Practitioners do not work for you, they work for creditors and use your company’s assets to pay themselves. We work for you, not creditors.

More Free Resources for Directors and Business Owners in Difficulty www.rescue.co.uk

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