Are You Struggling to Meet Your Tax Obligations?
More than 30,000 UK businesses were involved in some kind of insolvency action in 2023, which was an increase of more than 50% compared with 2021 according to an article in the Guardian earlier this year. A time to pay arrangement can throw struggling businesses a lifeline to weather the storms.
And the economic outlook would suggest that despite the fact that we are no longer in recession, 2024 and 2025 will be a challenging year for UK small business.
With this in mind we have prepared the following guide and associated video to help you understand what your options are with regards to agreeing what is known as a ‘Time to Pay’ arrangement with HMRC.
As ever, if you are affected by anything in this article, or need further advice or guidance, please do not hesitate to contact the IN Accountancy team who will be happy to help, or introduce you to someone who can!
What Exactly is a Time to Pay Arrangement?
Simply put, a Time to Pay arrangement (TTP) allows you to spread your tax payments over a more manageable timeframe.
Whether it’s income tax, National Insurance contributions, VAT, or corporation tax, HMRC provides a way to handle it without needing to pay everything upfront.
The catch?
You need to be proactive, and you will of course pay interest on the ‘late’ element.
Late payment interest is set at base rate plus 2.5%. This means that it’s generally cheaper than a bank loan, but still needs to be factored into your cash flow projections. The current rate at time of writing and set since 22 August 2023 is 7.75%.
Delaying talks with HMRC until after your tax is overdue will make securing an agreement much tougher.
So, if your cash flow hiccup is short-term, a TTP could be just what you need to tide you over. 💼📊
How Does a Time to Pay Arrangement Work, and What Can You Expect?
Initiating a TTP is about knowing your numbers and coming prepared.
Before you even think about dialling HMRC, you need a clear understanding of how much you owe, when it’s due, and how much you can feasibly afford to pay each month.
Remember, interest will accrue on your late payments (see above), making them larger than if you’d paid on time, but as long as the arrangement is set up in advance, you can avoid penalties.
It’s a balancing act between immediate relief and longer-term cash flow planning 🧐
What Happens if You Miss a Payment?
Just don’t!
This is critical: don’t miss a payment under a TTP arrangement.
Doing so can lead to severe penalties, up to 100% of the tax due, and could even prompt HMRC to start enforcement actions like winding up petitions or bankruptcy proceedings against you.
If you foresee an issue that might prevent a timely payment, communicate with HMRC as early as possible.
Proactivity is your best defence against escalating penalties. 🚨
Can’t Handle It Alone?
Setting up a TTP isn’t usually something you can delegate to your agents.
HMRC requires you to engage directly, which means you should be prepared with all necessary details like your Unique Tax Reference number and, depending on your tax type, possibly your VAT number.
You’ll likely need to show some proof of your financial projections like cash flow forecasts or management accounts.
The aim? To convince HMRC that your situation will improve, justifying the extended payment period. ☎️
What if You’re Really in Over Your Head?
It’s vital not to ignore your financial issues.
If your business is in serious jeopardy, there are professionals out there who can offer advice and possibly negotiate on your behalf.
Whether it’s restructuring or considering insolvency, knowing all available options will give you the best chance of navigating through tough times.
If you find yourself in this situation please don’t bury your head in the sand – we know some great people who can help, and the earlier you speak with them the greater your chance of a positive and practical solution!
Don’t go it alone when professional help could steer you back on track. 🛡️
Final Thoughts: Is a Time to Pay Arrangement Right for You?
Deciding to apply for a TTP arrangement is not a decision to be taken lightly.
It requires a candid assessment of the financial health of your business and a realistic plan for repayment.
If you’re confident in your ability to manage the commitment, this approach can provide the breathing room needed to stabilize your finances.
As always, if you have any questions or know someone who could benefit from this info, feel free to share this guide or put them in touch with us!
📌 Remember, every business situation is unique and while a TTP arrangement can be a helpful solution for managing tax payments, it’s crucial to approach this option with careful planning and clear communication with HMRC.
Please see HMRC’s guidance on this matter below:
