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Steve Stokes reviews the latest position on HMRC 'time to pay' arrangements

Author: Steve Stokes
8 September 2011

HM Revenue & Customs’ time to pay agreements are not as readily available as they were 18 months ago. These arrangements allow businesses to defer their tax payments until they get their house in financial order and have been used by close to 400,000 businesses. However, recent figures have shown that the number of businesses using these arrangements is falling. That is not to say that an agreement is not possible, but we cannot expect the leniency we have been used to; HMRC’s figures show that in 2010 the rejection rate for time to pay requests stood at just 5%, indicating a previously low barrier.

Many struggling companies have made use of these arrangements , yet a large proportion of those businesses have failed to achieve a full recovery and are now looking to ‘repeat’ or ‘renegotiate’ their terms.

Whilst arrangements should remain available for viable businesses, there is a need to ensure that they are not used as an alternative credit facility. This coupled with the austerity measures currently in place mean the Government is finding it difficult to give second chances or extend its’ support to business owners that have chosen to use their money for another purpose. As a result of this, the number of Winding Up petitions issued by HMRC in Q2 in 2011 has more than doubled since Q1.

In addition, HMRC is taking a more robust stance against directors and referred to the following directors’ liabilities in a recent update.

Under the Social Security Administration Act 1992, HMRC has the power to issue a personal liability notice (PLN) if failure to pay over PAYE/NIC deductions arise because of a director’s negligence, making the director personally liable.

In these circumstances, HMRC considers the following factors:

• Persistent failure to pay PAYE/NIC when other payments are being made on time
• Directors’ remuneration continues to be paid in the period
• Whether the directors have been involved with other companies which have failed to pay over taxes

HMRC’s use of these powers has, to date, been quite rare; however, there has to be a raised concern that HMRC could consider using this power more extensively. 

Furthermore, under the VAT Act 1994, where directors are involved in a new business following an earlier business failure with substantial tax debts, HMRC is increasingly requiring that the new business pays a deposit, or provides a bond, to cover any tax that may fall due. 

On receipt of a VAT Security Notice, a company has three options: 

• Pay the deposit/bond required
• Appeal against the decision within 30 days of the Security Notice
• Cease trading, as it is a criminal offence to levy VAT on any invoices if the terms of the VAT Security Notice are not complied with

The deposit/bond may be repaid at the end of the year, providing the company has submitted all VAT returns and ensured they are paid in full, in that year. Failure can lead to the instigation of criminal proceedings against the company directors personally. 

You should be aware that the actual deposit/bond asked for from the regulated entity can vary. The amount of VAT requested as a deposit is usually based on the average VAT returns previously submitted, over a six month period. This is based on the submission of quarterly returns and the time it would take HMRC to wind the company up on first discovering that a VAT return had not been paid. 

HMRC does, however, offer an alternative reduced deposit/bond equating to four months VAT, on the condition that the directors agree to switch to monthly VAT returns. 

Put simply, any company can be hit with a VAT Security Notice if they fail to submit a return over three consecutive quarters, even if they have paid the assessments raised by HMRC in the absence of these returns. 

In these difficult and challenging times, FRP Advisory is here to support you, your business and your clients. If you would like to discuss any concerns or business issues with us, then please contact Steve Stokes on 0121 710 1680 or by email using the online form below.