HMRC Time to Pay vs. a Company Voluntary Arrangement (CVA)

HMRC Time to Pay vs. a Company Voluntary Arrangement (CVA)

If your business is under stress and HMRC has offered a “Time to Pay” (TTP) arrangement, you might be wondering why you should consider a CVA instead. The simple answer is to do what is best for your business’s long-term health and financial stability. Both a TTP and a CVA can be effective, but they are suitable for different situations.

The primary benefit of a CVA over a TTP is that it offers a much longer repayment period—up to five years, compared to a TTP’s typical 6-12 months. The decision boils down to one key factor: affordability. If your business can comfortably afford the payments required by a TTP, then that may be a great option. However, if your business is insolvent and the TTP payments are too ambitious, it is likely that the arrangement will fail, and a CVA may be the only realistic option to continue trading.

A CVA is a powerful tool because it is a formal, legally binding agreement that can be used to restructure a company’s entire debt, not just its tax liabilities. Now that HMRC is a secondary preferential creditor, they must be paid 100p in the £1 in a CVA, but you can get up to 90% of other unsecured debts written off. The longer repayment period of a CVA also provides crucial breathing room for your business, allowing you to focus on returning to profitability. We can advise on both options and use the threat of a CVA as a “sword of Damocles” in TTP negotiations, as a formal insolvency often results in a smaller return for creditors.

Key Differences:

Timeframe:

A TTP is typically 6-12 months, whereas a CVA can be 3-5 years.

Debt Repayment:

A TTP requires 100p in the £1 for all debt. A CVA requires 100p in the £1 for HMRC but can write off up to 90% of other unsecured debts.

Costs:

A TTP is generally cheaper and quicker to set up. A  CVA is a formal process with higher costs due to the appointment of insolvency practitioners as supervisors.

Creditor Control:

A CVA is a formal legal process where all creditors   are informed. A TTP is a less formal agreement with HMRC only.

Additional Benefits:

A CVA can also be used to reduce costs by terminating leases and making redundancies with no cash cost to the company, providing a powerful mechanism for a complete business restructure.

Ultimately, the best choice depends on the specific financial health and long-term viability of your business. Both options require detailed financial forecasting and extensive liaison with creditors to ensure success.