Since 2008, HMRC has allowed taxpayers to defer paying taxes and duties through Time to Pay (TTP) arrangements. For those who are in financial distress due to COVID-19, a well-prepared TTP proposal could offer much needed support.
What is a TTP arrangement?
A TTP arrangement is a debt repayment plan for outstanding tax liabilities.
HMRC will consider TTP in respect of Corporation Tax, VAT, Income Tax, PAYE and NIC.
If agreed, a taxpayer can pay the tax in monthly instalments by direct debit usually over a period of 6 to 12 months – although longer periods can be agreed, depending on the taxpayer’s circumstances.
TTP ensures that a taxpayer does not face late payment penalties, although interest will still be charged on the outstanding liability.
Recently, HMRC stated that they will consider cancelling any penalties and interest that have arisen due to administrative difficulties contacting or paying HMRC due to COVID-19 – however, it remains to be seen how this will be dealt with in practice.
Essentially, it is for the taxpayer to persuade HMRC that the terms of their proposal is reasonable. HMRC will only agree to TTP if, upon reviewing the evidence provided, they are satisfied that the taxpayer has sufficient means to honour all liabilities that the business may have during the relevant period – not just the tax debt.
In some cases, HMRC may want to ask questions to assess the veracity of the information provided and the feasibility of the proposal, to ensure that the TTP arrangement can be adhered to.
Failure to adhere to a TTP arrangement may result in enforcement action or the commencement of insolvency proceedings.
Key considerations for HMRC
Whilst the Government expressed an intention to relax the rules in respect of TTP due to the current global pandemic, no new measures have yet been announced.
Using the existing scheme as a guide, HMRC normally take the following factors into account when deciding whether to accept or reject a TTP proposal:
- Compliance history: HMRC will look at whether the business has met its filing and payment obligations in the past and if any fines have been imposed.
- Industry: Certain industries are seen as high risk. HMRC will need additional comfort that specific groups of taxpayers will be able to pay the outstanding tax liability.
- Timing: It is best to request a TTP arrangement before the payment deadline to show that a business takes its obligations to pay tax seriously.
- Adherence to previous TTP Arrangements: HMRC will look at whether a taxpayer has asked for TTP in the past and whether they were able to stick to the terms of any previous arrangements.
- Steps taken by the business: A TTP arrangement is seen by HMRC as a last resort. HMRC will want to see that the taxpayer has made attempts to cut costs or seek financing from other sources before contacting HMRC.
How does a taxpayer apply for TTP?
Although the Chancellor has stated that VAT and self-assessment payments have been deferred as part of the COVID-19 support measures, no deferment has been offered in respect of Corporation Tax, PAYE or NIC.
If taxpayers are facing cash-flow difficulties which are likely to impact their ability to pay their tax bills on time, HMRC have set up a dedicated helpline to specifically deal with COVID-19 related TTP arrangements, however, any TTP proposal should typically be in writing with supporting evidence.
It is hoped that HMRC will adopt a pragmatic approach to the application process to reduce the pressures faced by several taxpayers during this extremely challenging time.