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!
The main advantage of a CVA over TTP is that you can write off a proportion of the debt whereas a TTP you have to pay all of the debt. 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.
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 £1 | Up to 70% of the debts can be written off | |
Will need to be paid over 6 months to 1 year | Debt can be paid over 3-5 years | |
No formal appointment of insolvency practitioners | A formal appointment as supervisor of a CVA all creditors informed. Less public than administration though | |
No effect on credit rating | No credit rating - will need a hive down to tender for government contracts. | |
| Cheaper and quicker to instigate | Formal appointment so higher costs. 20% more expensive as a rough guide | |
More immediate pressure on cashflow due to shorter time scale | A longer period allowed to make payments | |
No regulatory issues with being in a formal insolvency event | Regulations can be an issue but can normally be worked around with hive downs and negotiation. |
The Ultimate Guide For Worried Directors
Worried about poor cashflow? Covid-19?, How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.