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A Company Voluntary Arrangement CVA or a Formal Time to Pay Agreement

2nd January, 2024
Keith Steven

Written ByKeith Steven

Managing Director

07879 555349

He has rescued hundreds of companies and helped many of them turn around using CVA or pre pack. Could he help YOUR company?! Call him now 07833 240747

Keith Steven

My business is under stress and HMRC have offered to allow the company to pay its PAYE and VAT liability over one year. Why should I go for a CVA?

The answer is that you should do what ever is best for your business!

Company Voluntary Arrangement or a Time to Pay?

The main advantage of a CVA with HMRC over TTP is that you can pay back the debt over a longer period ( upto 5 years). It all boils down to affordability. Can your business afford the payments needed to meet a time to pay agreement? If the answer is yes then great! – Pay off all the debt and then get on with making money. But if the company is insolvent then it is likely that a too ambitious Time to Pay programme will result in insolvency with a CVA really being the only option to continue trading.

We can advise on both a formal Time to Pay proposal to the HMRC or a company voluntary arrangement. Both courses of action will need detailed forecasting of the businesses cashflow and extensive liaison with the creditors in question. The threat of proposing a CVA can be used as the “sword of Damocles” to push through a Time to Pay as in the event of formal insolvency the return to creditors is likely to be less.

Bear in mind that now that HMRC are secondary preferential creditors they will need to be paid 100p in the £1 in the CVA.  The unsecured creditors, if you have any, are likely to get back anything between 5p and 100p depending on the affordability.

So what are the main differences?

Formal Time to Pay Agreement ( Plan A )Company Voluntary Arrangement
The debt needs to be paid in full 100p in the £1Up to 90% of some debts (i.e not HMRC) can be written off
Will need to be paid over 6 months to 1 yearDebt can be paid over 3-5 years
No formal appointment of insolvency practitionersA formal appointment as supervisor of a CVA all creditors informed. Less public than administration though
No effect on credit ratingNo credit rating – may need a hive down to tender for government contracts.
Cheaper and quicker to instigateFormal appointment so higher costs. 20% more expensive as a rough guide
More immediate pressure on cashflow due to shorter time scaleA longer period allowed to make payments
No regulatory issues with being in a formal insolvency eventRegulations can be an issue but can normally be worked around with hive downs and negotiation.

A company voluntary arrangement can also allow the company to reduce its costs by exiting leases and making redundancies at no cost.