HM Revenue & Customs (HMRC) expects tax liabilities to be paid on time and in full. However, it will allow time to pay under certain conditions, especially if there are exceptional circumstances such as a terrorist incident or a natural disaster like a flood during a storm surge.
Once a time to pay request has been made, HMRC considers whether the request has come from a ‘can’t pay’ or ‘won’t pay’ individual or business. For the purposes of this post I have abbreviated individual or business to IB.
An IB who wants to make payments, but is unable to do so, is regarded as a ‘can’t pay’.
HMRC will try to negotiate a time to pay arrangement which will allow the IB to clear their debt and meet future payments on time. The IB will need to demonstrate an ability to make payments within an agreed timetable, as well as meet their ongoing tax liabilities during the time to pay period.
Unfortunately, there will also be the situation where an IB is classed as a ‘can’t pay’ who, despite their best efforts to negotiate a time to pay deal, will be unable to afford the instalment terms deemed acceptable by HMRC.
Where an IB has the means and ability to make payment, but will not – a ‘won’t pay’ – then HMRC will simply pursue enforcement action and not agree to a time to pay arrangement.
HMRC has a set of principles it attempts to adhere to, when agreeing a time to pay arrangement with a ‘can’t pay’ IB. The principles are:
- Objective criteria are applied to each case
- Time to pay arrangements are entered into on a case by case basis
- A time to pay arrangement is only agreed when the IB has proved their inability to pay their liability on the actual due date
- The IB offers the best payment proposals they can realistically afford
- A time to pay arrangement is only agreed when the IB can demonstrate to HMRC that the taxes included within the arrangement can be paid, in addition to ongoing taxes outside the arrangement
- The time to pay arrangement is as short as possible.
The same principles will apply to all IBs applying for time to pay, although further evidence and information may well be sought by HMRC involving cases with a larger amount outstanding.
Under no circumstances will HMRC ever reduce the amount of tax outstanding just to fit a time to pay arrangement and interest will always be charged to reflect the late payment of tax.
HMRC is bound by time to pay arrangements it enters into but is entitled to withdraw if:
- New facts subsequently emerge which cast doubt on the credibility of the time to pay arrangement which has been agreed
- The IB has misled HMRC
- The IB defaults on the time to pay arrangement
- Another reason comes to light which calls into question the tax at risk.
Levels of risk
There are three levels of risk considered by HMRC when reviewing a time to pay request:
- The amount of money involved
- The timescale required
- The previous compliance of the IB
Amount of money involved – The level of debt determines how much information HMRC will ask for, as the higher the debt, the higher the risk. The amounts where HMRC varies its approach are:
- Debts below £100,000
- Debts of £100,000 and over, but less than £1,000,000
- Debts of £1,000,000 and over
Timescale requested – HMRC attaches the highest level of risk to those IBs who ask for longer to pay. The minimum information requested by HMRC will vary depending on these timescales:
- 15 days and over but less than 3 months
- Over 3 months and up to a year
- Over 1 year
The timescale is measured from the latter of the date of request or the due date of payment.
HMRC will also take into account how overdue the tax already is when time to pay is requested and will generally look more favourably on those IBs who approach HMRC before the due date for payment.
Previous compliance – IBs with a poor payment compliance history can expect to be asked for more information and to generally have their time to pay request scrutinised more critically compared to the IB who has made previous payments on time.
IBs who have failed to meet previous time to pay arrangements are unlikely to be given further time to pay terms.
After receiving the time to pay request and considering the levels of risk, HMRC will now set out to establish:
- Why the IB cannot pay
- What the IB has done to try and raise money to pay
- How the IB intends to pay the debt and how any time to pay calculations have been arrived at
- What changes the IB is making to ensure time to pay is not requested again
HMRC expects every effort to have been made by the IB to raise money, to pay the tax bill, before time to pay is requested. Not only should the IB have approached their bank/building society for help, maybe in the form of an extended business overdraft or loan, but any business debtors should have been chased for any outstanding payments and any non-essential expenditure stopped or reduced.
Steps should also have been taken to help with cash flow, such as reducing levels of stock on hand and negotiating better terms from suppliers and customers.
Under some circumstances, if the IB has any personal assets which can be converted into cash, HMRC will expect those assets to be sold to pay the debt.
It should be remembered that HMRC should judge each case on its own merits and the sale of a personal asset will not normally be requested if the tax debt is small. However, HMRC may well take a different view if dealing with an IB with a poor payment compliance history.
Asking HMRC for help
HMRC’s Business Payment Support (BPS) service is designed to meet the needs of IBs who know they will struggle to pay their tax in full before the payment deadline and before a demand has been issued.
The BPS can be contacted on 0300 200 3835. The service is available Monday to Friday from 8am to 8pm and on Saturdays and Sundays from 8am to 4pm.
Further information on the service can be viewed here http://abytx.co/1gidJw1
HMRC also has a factsheet called ‘Problems paying your tax-what you need to know’ which can be viewed here http://abytx.co/IKZJvR
Author: Guy Smith, Senior Tax Consultant on the ReSource Tax and VAT Consultancy Team.
- Interest and penalties charged by HMRC for paying tax late – Day 6 of 25 days of tax tips (abbeytaxblog.co.uk)
- Payments on account: dates due and calculations – Day 4 of 25 days of tax tips (abbeytaxblog.co.uk)