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For some reason, limited companies may get to a point they unable to pay or be late at paying their taxes. When this happens, talking to HMRC straight away is key to avoiding heavier repercussions. This was prevalent during the pandemic when many companies went insolvent; that is, they could not pay what they owed to the tax authority on time or at all.
Fortunately, HMRC provides payment alternatives, one of them being the corporation tax payment arrangement, which we will discuss thoroughly in this article. This comprehensive guide will cover the topics revolving around time-to-pay arrangement, including its interest rate, eligibility, requirements, duration, process, issues about missed payments, and self-assessment payment helpline.
What is Time-to-Pay Arrangement?
HMRC’s Debt Management (DM) offers a lenient tax payment option for every qualifying limited company facing financial difficulty and insolvency in the form of time-to-pay (TTP) arrangement. This allows them to pay their debt taxes in instalments of the agreed amount, spread over a few months, so they can get back to getting their tax return up to date. Take note that TTP doesn’t concern income tax.
Companies with annual profits less than £1.5m pay corporation tax on a one-off basis, whilst those earning above such amount would pay in four instalments throughout the year. Once they anticipate they cannot pay their dues in full on the due date or be able to pay at all, they should notify HMRC right away and start on their tax planning immediately.
The sooner they communicate to HMRC about their status, the less likely HMRC would enforce strong debt recovery actions against them and the more likely to be granted a TTP payment arrangement, along with other options. Ignoring HMRC’s bill reminder/warning letter for overdue taxes that escalate to an arrear may pose serious consequences for them, such as penalties, court actions, and, worse, bankruptcy.
For instance, it would result in their winding up petition, forcing the companies to undergo liquidation in which the insolvent companies have to sell their assets, leading to their businesses’ shutdown, most especially if the taxes they owe have reached £750 and more.
Immediately communicating to HMRC about their situation is the most proactive way for companies to deal with their tax debt, as it implies they are not deliberately evading their tax obligations.
HMRC may use debt collection agencies to collect companies’ TTP dues. These registered bailiffs are given the same power as HMRC but can only contact companies via letter, SMS text, or telephone. Since they cannot do personal visits, once a company director fails to pay according to its agreed TTP schedule, they will then refer back the case to HMRC, which may result in further enforcement action.
Interest Rate on Time-to-Pay Arrangement
Who is Eligible for This Corporation Tax Payment Plan?
HMRC does not easily give TTP arrangement opportunities for limited companies, but they do to those with valid circumstances, recognising they need help in the face of tax debt and insolvency. The tax authority is more sympathetic to limited company directors on tax arrears who are unable to pay because of particular unforeseen problems such as insolvency of a major customer or a sudden illness.
Does a sole trader pay corporation tax? Sole proprietors do not, which is why the TTP arrangement does not apply to their income. Companies that are eligible to use HMRC’s automated online service to arrange TTP payment arrangements should meet the following criteria:
- They owe less than £30,000.
- They want to clear their debt within 12 months.
- They have updated corporation tax return.
- The overdue payment deadline days are still within 60 days.
- They have no other tax debts.
- They currently have no other instalment plans.
They may also be better considered for TTP eligibility when they belong to a certain business niche. HMRC particularly avoids certain sectors that prove to be unreliable in previous years. How well they have followed through with their tax account responsibilities also determines their likelihood of getting a TTP arrangement.
Requirements for Making Time-to-Pay Arrangement
Before limited companies contact HMRC, they should have the following information ready beforehand:
- Company registration number
- Company address
- Company telephone number
- Unique Tax Reference number
- VAT registration number
- Details of tax payments they would like to discuss
- Any current or future repayments from HMRC
They also need to prepare an explanation as to why they find it hard to pay their corporation tax bill, the actual steps they have made so they can obtain funds for paying the debt (e.g., ongoing expenses, projected income), and a proposal on how they would strive to repay it.
If their cash flow problem is caused by the Coronavirus pandemic, they will also need to inform HMRC straight away as they may provide a more lenient approach, especially with the duration of the TTP arrangement they will get, which will be discussed further below.
How Long Does Your Time-to-Pay Arrangement Lasts?
TTP arrangement is usually granted with a duration of 6 to 12 months, but it could last longer for companies with special reasons such as COVID-19. However, HMRC prefers limited companies to pay their debts as quickly and on time as possible.
The duration is entirely up to HMRC. Paying TTP late would result in a costlier instalment option in the long run. Granting a longer instalment period may be rare for HMRC but it is possible, as long as companies can prove the severity of their situation yet can afford to pay given a longer instalment time.
Process: Time-to-Pay Arrangement
After preparing the requirements needed, as discussed above, companies can then proceed to contact HMRC and negotiate a TTP arrangement. Here are what they need to know about the process:
• Agreeing an Instalment Plan
Limited companies should only agree with an instalment plan they can follow through. They need to make sure they can commit to the period and amount before agreeing to the term, as they still have to pay current or future tax return liabilities. HMRC takes their petition more seriously if they speak out their disagreements and do not just easily agree with whatever HMRC recommends.
For HMRC, this would mean they are serious about committing to the agreement once it starts. It would greatly help to inform HMRC that they are seeking help from tax professionals so they can make the best decisions.
• If Proposed Instalment Plan is Accepted
When the DM or HMRC-registered office for debt collection agrees to the companies’ petition for TTP, they will receive a written confirmation afterwards. They may also just provide a verbal agreement, in which case the companies should request a written deal.
This is to avoid any disputes regarding the agreement that may arise in the future and avoid possible late payment penalties. Generally, TTP arrangements are made flexible in case the companies’ financial situation gets worse.
• If Proposed Payment Plan is Rejected
HMRC does not grant every company request for instalment payment, most especially if they already have had a TTP arrangement in the past, although this doesn’t mean they are automatically opt-out of another payment arrangement.
Companies without convincing arguments or evidences will need to continue paying their tax debts as much as they can. Unfortunately, bankruptcy may be inevitable as HMRC has strong debt recovery enforcement. They may force such companies into liquidation or perform court action, which ultimately leads to their bankruptcy. However, as much as possible, HMRC considers these actions as a last resort.
What if You Missed a Payment?
Failing to comply with the TTP arrangement leads to more serious consequences. HMRC will most likely cancel the agreement and impose a penalty. When this happens, legal action called Distraint Order Notice may most possibly come next.
With a Distraint Order Notice, HMRC will forcibly seize the companies’ assets. They may also perform a Winding up Petition that will consequently force the companies to liquidate their inventory, which is a very serious implication for their directors. When this happens, it’s best that they consult an insolvency practitioner to guide them through this difficult situation.
Self-Assessment Payment Helpline
Companies have several helpline for their complaints or appeals regarding their self-assessment payment. Even if they cannot pay their tax returns dues, they have the right to make appeals, challenge HMRC’s decisions, or make complaints.
They can get free advice from any of the following organisations for free:
- Step Change debt charity
- Advice NI
- TaxAid
How Experts Can Help
References
If you cannot pay your tax bill on time. (n.d.). Retrieved from Gov.Uk: https://www.gov.uk/difficulties-paying-hmrc
What is an HMRC Time to Pay (TTP) Arrangement? (n.d.). Retrieved from Company Debt: https://www.companydebt.com/hmrc-tax-problems/time-to-pay-hmrc/
Seeking time to pay. (n.d.). Retrieved from Tax Aid: https://taxaid.org.uk/guides/taxpayers/tax-debt/time
How to set up a payment plan for your taxes with HMRC. (30 June 2021). Retrieved from WOW: https://www.thewowcompany.com/blog/how-to-set-up-a-payment-plan-for-your-taxes-with-hmrc
Corporation tax: What is it and what if you can’t afford to pay? (n.d.). Retrieved from Real Business Rescue: https://www.realbusinessrescue.co.uk/tax-hmrc/corporation-tax-what-it-is-and-what-happens-if-you-cannot-pay
What if I cannot pay my tax bill? (n.d.). Retrieved from Low Incomes Tax Reform Group: https://www.litrg.org.uk/tax-guides/tax-basics/what-if-i-cannot-pay-my-tax-bill
Cannot pay corporation tax bill – what options do I have? (n.d.). Retrieved from UK Liquidators: https://www.ukliquidators.org.uk/company-debt-advice/cannot-pay-corporation-tax-bill-what-options-do-i-have
Tax and other debts owed to HM Revenue and Customs. (n.d.). Retrieved from NI Direct: https://www.nidirect.gov.uk/articles/tax-and-other-debts-owed-hm-revenue-and-customs
Beyond the balance sheet. (27 June 2022). Retrieved from Wellers: https://www.wellersaccountants.co.uk/blog/payment-on-account
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