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HMRC and VAT Time to Pay Arrangements

Written by Keith Steven Managing Director 18 December 2017

An HMRC Time to Pay arrangement for VAT can give you the breathing space you need to gather funds and repay taxes you owe. It can also help you avoid the hefty surcharge that comes with delinquent tax payments.

Here, we'll explain what a Time to Pay arrangement is, and how you can negotiate one for your business.

What is a VAT Time to Pay Arrangement?

A VAT Time to Pay arrangement is a debt repayment plan, sometimes referred to as a scheme, specifically for Value Added Tax.

Businesses often fall behind on VAT payments, especially in uncertain economic times. The most common mistake is failing to register for VAT in the early years of the business. This is because directors often underestimate the performance of their fledgling business. However, this results in a huge retrospective HMRC VAT bill, which can put significant pressure on a company’s cash flow.

Another common mistake is when businesses fail to de-register for VAT when they fall below the de-registration limit. A company cannot cancel its VAT payments retrospectively, so often ends up paying money it didn’t technically owe to HRMC.

Whatever your reason for falling behind on your VAT, you should be aware that you may receive a surcharge for late payments. This is why a VAT Time to Pay arrangement can be very effective.

You must agree the repayment plan with HMRC. It will take into account your company’s compliance record, realistic ability to pay and past payment history.

If HMRC does not believe you’ll be able to pay over an agreed period, you will not receive a VAT Time to Pay arrangement and may even face enforcement procedures.

Therefore, a HMRC Time to Pay arrangement is most suitable for businesses whose debts are due to cash flow shortages, not problems with the business itself. Companies faced with the latter should seek alternative methods (e.g. CVA or administration).

How do you get a HMRC Time to Pay arrangement for PAYE?

It is up to you to negotiate a VAT Time to Pay arrangement with HMRC. It will not offer one to you.

Usually, this is done after a director realises they’re unable to pay a debt on time, or if they miss a payment and receive a payment demand. In either case, it’s important to call HMRC as soon as possible.

To speed up proceedings, prepare for your initial phone call. Seek financial advice, and have the following information to hand when you make the call:

  • Appropriate reference numbers (e.g. PAYE reference)
  • Total amount of the PAYE bill you’re struggling to pay
  • Reasons behind your inability to pay
  • Examples of how you’ve tried to raise the money
  • Your repayment offer (how much you can pay initially, and how long you'll need to pay the rest)
  • Your bank details
  • Information about income, expenditure, assets, sales and cash flow forecasts

Offers of 3-6 months can usually be arranged over the phone. However, if you require a longer repayment plan (12 months for example), you'll need expert assistance and must prepare for a much lengthier process. This could even include a VAT investigation into your company.

What happens next?

If HMRC believes you can pay, you must do so immediately. This usually takes place over the phone by debit or credit card.

If it agrees that you can’t pay, it will assess whether a HMRC Time to Pay arrangement is the best option for you. If it deems your company non-viable, even with the Time to Pay, it may pursue legal action such as an enforcement order notice or winding up petition.

However, if you are granted a VAT Time to Pay arrangement you will start repaying the money owed immediately. If you default on payments or are found to have given false information, you could face the same severe consequences as a non-viable company, plus a fine.

A Time to Pay arrangement is an effective way to pay off debts to HMRC, however there are several criteria your company must meet to obtain one.

Categories: HMRC Time to Pay Arrangement for VAT and PAYE

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