Paying tax arrears? How does a ‘time to pay’ plan work?

Research from one of the UK's top accountancy firms, backed up by HMRC data, showed that by the end of 2018/19 well over half a million companies and individuals were on 'time to pay' (TTP) arrangements. The major factors cited for this was Brexit and the slowing of the economy.

Paying tax arrears? How does a time to pay plan work?

Personal and company insolvency rates also reached their highest levels not seen for a decade, increasing by 22%.

What is a 'time to pay' arrangement?

It's a debt repayment plan that can be used to pay off any outstanding taxes which can also be used by companies that have defaulted on their payments and need to settle their Corporation Tax, VAT and/or PAYE.

You can ask HMRC if you can have some extra time to pay it, which is usually for a short period of around 6-12 months. You will need to consider whether this is long enough to repay the tax debt. Plans can be spread over a longer timeframe but this is dealt with on a case-by-case basis and can be subject to interest charges, with the rates payable determined by the length of time the debt has been outstanding.

You need to consider this option very carefully as it could create a vicious cycle and compound your problems.

What is HMRC's criteria for any arrangement?

  • You must clearly outline what you will be able to pay within the agreed timeframe.
  • The arrangement is simply there to provide companies who are experiencing financial problems with a bit more breathing space.
  • If your company's financial circumstances improve or decline, you must contact HMRC immediately.
  • The instalments should be agreed for the shortest time period possible.
  • HMRC's decision is 'risk based' – if they consider it to be 'high risk' you may need to supply further information before a final decision is made.

(Entering into a TTP arrangement does not reduce the total amount of tax owed, it just allows you to just clear the balance in instalments).

What information does HMRC need from you:

Should you wish to set up a TTP arrangement, HMRC prefers you contact them via their helpline: 0300 200 3500.

  • Put your case in writing as to why you are unable to pay.
  • Supply copies of your cash flow or other relevant documentation.
  • Disclose the amount owed, and how much you will be able to offer as a monthly payment.
  • Be honest about the amount your company can comfortably afford to pay each month.

Note: HMRC will not agree to any TTP arrangement unless they are confident that you will be able to keep up with the payments; offering to pay more than you can realistically afford could backfire and see your proposal rejected.

Our final tip: It may sound obvious, but the key message here is to plan ahead so that you can get an idea as to how much your tax payments are going to be and then set aside a pot each month to build up your tax funds. This especially applies if you are self-employed, a contractor or a small business where your income, budgets and monthly costs can fluctuate widely. 

While there are payment options on offer, as mentioned earlier they could end up costing you more than you originally owed, plus you have the added stress of trying to balance your books at the same time.

If you need any help with your tax payments, please do get in contact with us on 0208 861 7575 and let's talk about how we can help you.

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Lawrence Grant

We are a member firm of the Institute of Chartered Accountants of England & Wales (ICAEW). Registered to carry on audit work in the UK and Ireland. Our Insurer is Prosure Solutions (per W R Berkley , and IGI), 34 Lime St, London EC3M 7AT (worldwide, excluding North America). Also an independent member of GGI, a multidisciplinary worldwide association of accountants, tax consultants & lawyers.