Managing Tax Payments with Time To Pay Arrangements

There are hundreds of thousands of businesses struggling to meet their financial obligations to the Exchequer.

Businesses, especially smaller enterprises, have been reporting that in the current difficult economic climate they are struggling with cash flow issues as customers and suppliers try to stretch out the time they take to pay invoices. That means they may not have enough liquidity to pay the tax they owe.

While the majority of these tax monies are repaid, the HMRC (Her Majesty’s Revenue & Customs) has reported that 10% of expected revenues are outstanding.

The UK’s Time to Pay (TTP) scheme was introduced in 2008 and allows businesses to pay overdue tax bills over a certain period of time. The scheme is administered by the Businesses Payment Support Service.

According to the HMRC website, arrangements are tailored to the ability of the customer to pay and are typically for a few months although they can be longer.

TTPs lasting longer than a year are only agreed in exceptional cases. Most arrangements involve regular monthly payments being made but in exceptional cases may involve a short period of deferral.

All businesses seeking a TTP of £1m or more need to pay for an Independent Business Review (IBR) to be carried out by an approved firm, normally an insolvency practitioner, and a total of 13 firms have been approved by HMRC to carry out IBRs to establish whether the business can pay back their deferred tax bill.

When the restructuring plans are ready, a business rescue adviser would normally expect to bring in an HMRC approved firm that they already know. The IBR would assess the company’s ability to eventually pay back any tax deferred by HMRC based on a review the proposals prepared by the adviser. These would be prepared with view to demonstrating a viable business.

The most recent statistics issued by HMRC are from March 2010 when it was revealed that 300,000 businesses have entered TTP arrangements since the end of 2008, deferring at least £5.2bn in business taxes. That equates to an average of 4,500 a week.

Concerns have been raised that it is getting tougher to join the scheme, and there have been some predictions that it would eventually have to close. However HMRC has insisted the TTP is still available and the eligibility criteria have not changed. The UK Coalition Government’s Business Secretary Vince Cable, speaking at a recent Institute of Directors event, reinforced this by saying that his department’s instructions to HMRC was to still make it “easy” for applicants to agree TTP arrangements.

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