VAT arrears - how a payment plan can help

If you ask a business owner or director what one thing they would like more of – you might get several different answers depending on when you ask. 


Why a payment plan might be your best way to deal with VAT arrears

VAT Arrears

 

Money, customers and staff will all appear quite frequently but the most useful one we suspect would be time. 

 

Now we know that unless you’re Doctor Who, then you won’t be able to take advantage of a Tardis and jump back and forth between the past and the future but sometimes in this reality you can get some extra time to pay outstanding debts such as paying VAT arrears. 

 

But in the case of any outstanding VAT, if you need to pay PAYE or have outstanding corporation tax that’s owed to HMRC then there might be a way you can get more of this very precious commodity. 

 

It’s called a Time to Pay (TTP) arrangement and it can supply the essential time you need to repay some of these debts. 

 


What is a Time to Pay arrangement?

 

A Time to Pay arrangement is a legal agreement between a company and HMRC where they agree to repay any outstanding amounts in a more manageable way – usually between six and 12 months but this could be extended to two years in certain circumstances. 

 

If the repayment schedule is met with no late payments then HMRC will waive any interest or other accrued penalties. 

 

A TTP is not granted automatically as HMRC will judge each application based on its merits such as previous conduct with HMRC including communication and prior late payments. 

 

Before agreeing to any Time to Pay arrangement HMRC will ask the following questions 

  • Why can’t the company pay it’s VAT or other debt on time?
  • Was their annual VAT return submitted on time and accurately?
  • How much can they pay straight away, if anything?
  • How long will it take to clear the rest of the arrears?
  • What have they done to clear the debt before seeking a TTP arrangement?

 

The ongoing viability of a business is also a deciding factor as HMRC will need to be convinced that granting the arrangement will help alleviate a temporary, short term cash flow problem rather than continue to keep an unprofitable business afloat.

 

Missing a TTP payment will also likely be treated with zero tolerance as would any other breach of the arrangement. In these circumstances expect HMRC to demand immediate repayment in full.  

 

We’ve previously written about the VAT payment deferral scheme which allowed businesses to pay VAT that was deferred from earlier in the year over the course of 11 equal monthly instalments without paying additional interest or penalty charges but this is separate from a TTP agreement. 

 

Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk, said: “Most creditors don’t like it when businesses get behind on their liabilities – especially if that creditor is HMRC. 

 

“Whether it’s PAYE, VAT or bounce back loan debt – they take arrears seriously and so should businesses that find themselves owing them.

 

“The best strategy is to get some professional advice and decide what to do based on your options rather than wade in without a strategy. 

 

“For instance HMRC can usually be negotiated with if a business lets them know in advance that they will have difficulty in meeting their repayment obligations. If HMRC has to get in touch first, then a TTP will be more difficult to obtain.

 

“Additionally, HMRC has been granted new powers which would make directors personally liable for company debts if there’s a risk that the business could close. 

 

“This makes it even more important for directors and business owners to get timely advice and act on it rather than crossing their fingers and going their own way.” 

 


 

What happens if a business can’t repay VAT arrears?

 

Before the majority of people had even heard of Covid-19, if a business was more than seven days late in repaying outstanding VAT arrears, they’d receive official letters demanding the money which is the first stage of their recovery process. 

 

After this they could send their officers to pay a personal visit, levy additional penalties and fines and ultimately, under certain circumstances, bring a winding up petition which would ultimately see a liquidator appointed to put a business into liquidation

 

A business that owes VAT, PAYE or corporation tax arrears might not be in specific financial difficulty but these would definitely be warning signs that trouble could be ahead if not dealt with promptly and effectively. 

 

If your business owes or might struggle to make future repayments then the best course of action would be to get in touch to arrange a free initial consultation with an expert member of our team.  

 

This is the first chance a director or business owner has to set out all the issues facing their firm so we can get a full and complete picture. 

 

Once we know exactly where you are, we can work with you to produce a plan to help get the business back on its feet as quickly as possible – but we can’t do anything unless you take the essential step of getting in touch first.

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