HMRC toughening stance
The attitude of HMRC to time to pay arrangements for businesses that find themselves unable to meet their PAYE/NIC and/or VAT liabilities appears to be hardening. From the autumn of 2008 - when the Labour Government launched Business Payment Support Line and HMRC seemed ‘under orders’ to be as accommodating as possible – to now, HMRC appears to have developed a much harder line.
In part, this may reflect a change in political masters following the 2010 election. Beyond this, however, it may also reflect a belief by HMRC that some businesses were taking advantage – seeking assistance when it was not really required. Although HMRC is still willing to allow a period of grace (called a ‘time to pay arrangement’ or ‘TTP’ for short), it will certainly not do so in each any every case. HMRC has become much more circumspect and will want some assurance that the terms of the TTP can be complied with.
Perhaps because it does not have the skills internally to evaluate business viability, for larger businesses (owing tax of £1m or more) HMRC may require the business to commission an independent business review – similar to those performed for banks – by a firm of accountants. To this end HMRC has been looking to establish a panel, comprising some of the larger accounting firms, which HMRC will recognise for this work.
For smaller cases, HMRC will assess the suitability of the business by reference to historic data. Consequently, the business will need to show that it has not had a previous TTP recently; that its compliance record is good; that it plans to make payments on a weekly or monthly basis; and that the arrears can be cleared within not more than 12 months.
HMRC pre-requisites for a time to pay (‘TTP’) arrangement:- That the business (or any related business) has not sought a TTP in the last twelve months That the business can bring the unpaid tax up to date within 12 months That the business is not a phoenix of a previous business owned and run by the same management team That there is a viable business which is worth saving That unless the deferral is for a period of a month or so, the business makes payments by weekly or monthly instalments That the terms agreed are adhered to That all post TTP taxes are remitted on time |
Where a business really needs a grace period of more than twelve months, HMRC will generally take the view that the burden should be shared with other creditors by the proposing of a voluntary arrangement. Whereas HMRC will not agree to any of the debt to be written off as part of a TTP, in a voluntary arrangement some element of write off is more commonplace.
Nevertheless, in such circumstances HMRC will require that it is not being unfairly prejudiced when its position is compared with other creditors. Furthermore it will generally not agree to a write-off unless the arrangement provides for the business to make contributions for a five year term. Throughout the duration of such an arrangement it is a legal requirement that it be supervised by a licensed insolvency practitioner.
Where agreement cannot be reached with HMRC, it will generally pursue one of two remedies. Where the business has tangible assets – such as plant and machinery or substantial stocks of a readily saleable nature – it will often take walking possession over the assets - leading to distraint (ie removal of the assets) for sale by auction if the debt is not settled within seven days.
In other cases, HMRC will petition for the winding up of the company - or bankruptcy of its proprietors if it is unincorporated – on the basis that the business is insolvent. Generally speaking, it will take some time before HMRC procedures lead to the imposition such sanctions. Nevertheless, the threat they pose should never be under-estimated. Once the bailiff has visited or a winding up or bankruptcy petition been served, it is often too late to have much prospect of saving the business.
One other issue to watch out for is the timing of payments of PAYE/NIC. We heard about a business recently which made a point of making its monthly remittance on the 28th of the month following deduction of the monies from the staff salaries – rather than on the 19th of the month as required by HMRC. After the end of the tax year to 5 April 2011, the CEO found a demand in his post for £50,000 of penalties calculated by reference to 5% of the tax deductions paid nine days late!
The Business Payment Support Line number is 0845 302 1435.
Peter Whalley, Partner, James Cowper LLP +44(0)2380 221222 or email pwhalley@jamescowper.co.uk
20.07.11