Paying HMRC can be hindered by cashflow problems
As an employer, if you are experiencing problems paying HMRC and are unable to pay your Pay As You Earn (PAYE) or Value Added Tax (VAT) on time due to cashflow problems, it is not necessarily the end of the road for your business.
HMRC are required to ensure that companies report the amount of tax they have deducted from their employees and VAT charged to customers on regular returns and ensure that the tax due is paid over to them in a timely manner, typically paying HMRC monthly for PAYE and quarterly for VAT. With the introduction of the Real Time Information System (RTI) in respect of PAYE and NIC, HMRC are now in a position to assess quicker than ever, if businesses are not compliant or are not remitting the correct amount.
However, despite the legal obligations, if arrears do arise there are still many options available for paying HMRC, which are all open to directors of businesses that find themselves in financial difficulty and unable to keep up to date with their PAYE and/or VAT payments.
The options include:
Time to Pay - If the business is experiencing a short term cashflow problem, the company can approach HMRC and ask for time to pay off the arrears. HMRC will require financial data to assess whether the company can afford to make these payments or indeed if they think it can make greater payments. If agreed, this is formalised into a “time to pay” (TTP) arrangement. HMRC will monitor the company’s performance against the agreement.
Many businesses prefer to approach their accountants or other financial advisors, such as an Insolvency Practitioner, to help them seek a time to pay arrangement with HMRC as they have experience of dealing with these requests and can assist in preparing the required cashflow forecasts and will have regular contact with HMRC on behalf of other clients.
If the problem paying HMRC is more fundamental or a long term funding issue, you may need to explore one of the other options below.
New/additional investment or finance – It may be necessary to inject further funds into the business yourself, or seek an increase in the company’s overdraft facility or a loan from the company’s bank. The company could also consider seeking some alternative funding options such as to look to borrow money by refinancing a vehicle, an item of plant or machinery or seek to obtain a loan against your sales ledger – known as ‘invoice finance’.
Company voluntary arrangement – this is known as a CVA and is a formal agreement with HMRC and other unsecured creditors to agree that debts can be repaid over a much longer period, typically up to five years and / or in many cases have part of the debt written off. This is often mistakenly referred to as a corporate voluntary arrangement, creditors’ voluntary arrangement, creditors’ voluntary agreement or similar derivatives of ‘CVA’. The main additional advantage of a CVA is that the company continues trading and can be continued to be operated by the directors.
Administration - This is a legal process that allows the business breathing space and protection from creditor pressure, including any legal action from HMRC. It can be used to allow time to find a buyer for the business or simply restructure it. The most well-known type of administration is a ‘pre-pack’ administration, where a business sale is arranged prior to the formal appointment of administrators, but which takes place as soon as the administration starts.
What happens if you do nothing?
HMRC appear to be cracking down on late and non-payers and they have various powers to recover the debt and so It is important to tackle the possibility of becoming insolvent before HMRC hits.
Prior to April this year, HMRC had the ancient power of distraint that dates back even prior to the Magna Carta. This gave HMRC to power to seize a business’s assets if it had arrears of tax. The law changed in April 2014, and whilst HMRC still have this power, they must give the company seven days notice of its intention to seize its assets.
HMRC can also seek a bond from the business; typically a deposit or insurance policy covering 4 months VAT or two months PAYE, effectively insuring against the company not paying its debt in the future.
If the outstanding debt is still not dealt with, ultimately, HMRC can petition for the winding up of the company, which could lead to the closure of the company and its liquidation.
What should you do when you have problems paying HMRC?
The key in all of these situations is to seek advice early as to the most appropriate course of action for your circumstances to avoid any of these actions becoming a reality.
Don't wait until HMRC are threatening you with a winding up petition before you act, as some of these options may no longer be available or at least may be harder to implement to help the business survive.
For more information on HMRC Time To Pay, view our relevant pages:
- How HMRC Time to Pay works
- What to do when you have HMRC tax arrears
- What to do if you can't pay your tax bill
- Guide to avoiding HMRC penalties
- HMRC distraint and bailiffs rights
- What you need to know about HMRC distraint
- Tips on achieving a re-negotiated Time to Pay Arrangement