HMRC and Negotiation and Time to Pay Agreements
Where a company has fallen behind with Tax or VAT payments but hasn’t yet been passed to EIS (Enforcement & Insolvency Service), there is still time to negotiate a time to pay agreement (TTPA).
A company can apply to HMRC for a TTPA if the debt has fallen due within the last 30 days. If the debt is older, HMRC will consider a proposal but the circumstances for the late communication will have to be explained and have merit.
Any TTPA proposal put forward should be supported by management information, forecasts, details of how the funds will be generated either from cost cutting or new business initiatives and the directors should also take the opportunity to try to convince HMRC that similar issues will not be repeated. We would always recommend that as large as possible payment is made with the proposal as a gesture of good faith, even before the TTPA is approved (providing the proposal holds water – if not, we would recommend an insolvency process and no advance payments to HMRC).
HMRC will usually allow a period of between 3 – 6 month to pay and will always look to recover as much of the debt as possible. In exceptional circumstances HMRC will allow up to 12 months. It is essential that a company continues to communicate with HMRC throughout the TTPA as should the TTPA be cancelled, a second TTPA will usually not be given and it may sour HMRC views going forward should the company propose a CVA (Creditors Voluntary Arrangement) where HMRC support may be fundamental to the CVA proposal being approved.
Cancellation of a TTPA may be made on the grounds of non-compliance with the terms of the TTPA, providing false or misleading information to obtain a TTPA or incurring further liabilities to HMRC after the TTPA is entered into.
We have in some instances found HMRC attitude toward a TTPA proposal confusing. Where for example, a TTPA proposal offers to repay a debt in full within 6 months but is rejected forcing the company to apply for a CVA, where the company may only be offering to repay only 65% of the debt over a five year period and is accepted by HMRC. It may be that in this case, there were unknown factors as to why the TTPA was rejected and in addition it may be that the Voluntary Arrangements Unit at HMRC takes a different approach to the approach of the EIS Unit.
If you would like to talk to us about any issues relating to this article please do get in touch.