Time to pay: Exploring HMRC’s guidance amid ramp up in tax enforcement action

Wednesday October 18, 2023

Our Restructuring Advisory Director Simon Farr, examines why 'time to pay' agreements may offer a lifeline for those struggling to meet repayments

In this world nothing can be said to be certain, except death and taxes – or so the old saying goes. That level of certainty around tax has only grown in recent times, with HMRC reported to have now recruited an additional 3,000 staff into its compliance team as it looks to make up on a significant fall in revenue in the two years since the pandemic; marking a 12% rise in its enforcement capacity.

This is partly reflected in the number of winding up petitions issued by HMRC in the first three quarters of 2023 having increased nearly four-fold when compared to the same period in 2022. There is therefore greater scrutiny and pressure for hard-working businesses that have struggled to address Covid-related deferrals, or are simply falling behind due to the challenging economic environment of the past 18 months.

At the same time as the increase in enforcement action, the cost of late payments has also risen significantly. Penalties for late payments are linked to the Bank of England’s base rate and, while this has now potentially peaked, it remains far higher than it has been in recent years.

As a result, there is an increase in businesses pursuing new time to pay agreements with HMRC to help with managing cash flow and payment arrears.

What is a time to pay agreement and why could it be of use?

HMRC’s time to pay agreements are carefully prepared plans that allow business owners to repay their arrears of PAYE, VAT or Corporation Tax over an agreed timeframe.

This can be an effective way to deal with cash flow pressures and HMRC liabilities, ensuring the business has the ability to repay these over a manageable period.

Importantly, as time to pay arrangements are based on the specific financial circumstances of an individual business, there is no uniform arrangement – it is a bespoke plan tailored to suit the needs of the business, taking into consideration what it can afford to pay and then using that to work out how much time is needed to complete the payments.

How common are time to pay agreements and what kind of repayment timeframe is normal in the current climate?

Time to pay agreements can offer much needed respite to businesses that are experiencing financial difficulties, but HMRC doesn’t agree to them lightly. Businesses need to have a clear reason for not being able to meet their tax payments on time and, ultimately, a watertight commitment that will see the payments being made in full.

Three-year and longer time to pay agreements may have been standard during the Covid pandemic, but HMRC debt to corporates peaked at £72 billion in 2020 and – as mentioned above – HMRC has since undertaken an increasingly proactive approach to getting this money back.

Even though many businesses are currently being squeezed in terms of both profit and cash, meaning they can more easily fall behind on PAYE and VAT payments, HMRC has undoubtedly initiated a return to its pre-Covid-approach.

It is therefore key to ensure that businesses seek support to secure the right TTP agreement that is tailored in line with their cash flow and over the longest time period possible.

In what circumstances and to what businesses could HMRC offer concessions?

It’s important to recognise that HMRC is generally open to agreeing terms for a payment plan, as not only will this lead to the settlement of a tax debt, but it will help businesses navigate challenges and manage cash flow pressures.

But early engagement is key.

Businesses should also be mindful when entering into a time to pay arrangement, as HMRC can take a more aggressive approach where agreed payment plans are not honoured. The payment of ongoing HMRC liabilities on a timely basis will also be a condition of any agreement.

It’s essential therefore that businesses aren’t drawn into an unrealistic time to pay plan as this could damage the relationship with HMRC and cause more problems in the longer term.

Ultimately, HMRC wants to see a reasonable compliance record if possible and comfort that they are part of a broader solution. This includes a coherent strategy and a well thought through proposition from the business as to how it will navigate its challenges – whether this focuses on a turnaround plan to address operational challenges, or centres on new debt or equity investment. FRP Question Time

Related team

Simon Farr

Simon Farr

Simon Farr

  • Partner
  • Restructuring Advisory
  • Manchester