HMRC are generally one of the major creditors in 90% of the Company Insolvency procedures we deal with. And as such, they take a dim view of Companies they believe have been using funds held in “trust” for the government – VAT and PAYE deductions from employee wages – as a source of liquidity. HMRC recognise the benefit to the overall economy, and the government coffers in turn, by businesses continuing to trade as opposed to being placed into liquidation. However, they have to balance this by ensuring those companies neglecting their statutory duties or manipulating the system are duly punished.
In the current economic climate, HMRC are more likely to be slightly more lenient in their assessment of potential TTP agreements, which is why it is critical that if your business is experiencing financial difficulties that have resulted in the company falling into arrears with HMRC, you take immediate steps to engage with them to come to a solution.
We understand navigating HMRC time to pay arrangements can be tricky. Below we have prepared some helpful pointers to ensure your business is in the best possible position for coming to an arrangement with HMRC if you are struggling to make your payments as they fall due.
Filing of Returns
This may well be the most important factor in terms of how HMRC view the general compliance of your business and whether they, therefore, believe the financial difficulties of the company are due to circumstances outside of the directors’ control. All VAT Returns, CT Returns and PAYE RTI information must be filed on time and records are up to date, even if the payments due on those returns have not been paid. This demonstrates to HMRC that the business takes its statutory duties seriously and indicates that it is more likely the arrears are due to current trading conditions as opposed to willful neglect on the part of the directors.
Early engagement with HMRC
Early engagement with HMRC – As soon as the company begins to fall behind with payments due to HMRC, engaging with them at the earliest opportunity is another critical factor. It’s very common for directors to bury their heads in the sand and ignore the penalty notices that begin to arrive once the company is in arrears. In particular, directors tend to pay their “trade and expense” creditors in priority to HMRC, as these creditors appear more of an immediate issue. However, this situation quickly spirals out of control with the build-up of sums due to HMRC, who are less likely to agree to a TTP if it appears the company has paid “preferential” debts and left HMRC behind.
Preparing financial information
In advance of discussions with HMRC, prepare an honest assessment of how the business arrived at its current financial situation. As well as a detailed cash flow projection to demonstrate how the business will be able to meet its ongoing liabilities whilst catching up with the arrears in the TPP agreement. This should be a realistic estimate of the company’s performance over the coming year. It should highlight any necessary cost-cutting plans that may have take place. This will show HMRC you’ve taken the matter seriously and that a TTP agreement is likely to be successfully completed.
Making the best offer you can afford
HMRC needs to be satisfied with the ongoing viability of the company, hence the importance of the cash flow projection and that the offer being made is realistic. There is no point in inflating the figures as HMRC will be able to assess from the financial information they hold if the proposal is unrealistic and will likely not agree on a TTP. Please note that generally, a TTP agreement will be for around 12 months. But the sooner the business can repay the outstanding sums the better. As this indicates the business is back on a firmer financial footing.
Finally, it may be that the arrears due to HMRC are indicative of a more fundamental problem with the business. We would suggest you get in touch with one of our qualified Insolvency Practitioners for professional advice about your time to pay arrangements.
Get in touch
At FD Business Rescue, we aim to advise and assist businesses that are experiencing financial
difficulty. It is not always easy to see what the next steps are and what options are available. So don’t
delay reaching out if your business is struggling. If you would like advice about your time to pay arrangements, please get in touch or simply call 0800 652 0002.