Most tax professionals and many taxpayers will be familiar with the concept of ‘time to pay’ (TTP) arrangements with HM Revenue and Customs (HMRC). The basic position of HMRC is that tax is payable when due by law (note - the tax legislation does allow certain tax liabilities to be paid by instalments, but such instances are relatively uncommon). However, HMRC has some discretion (under a general responsibility of collection and management of taxes etc in the Commissioners for Revenue and Customs Act 2005) to allow payment after the due date, in the form of TTP arrangements.
HMRC issued a ‘briefing’ in October 2011, ‘Giving taxpayers time to pay’ (www.hmrc.gov.uk/about/briefings/index.htm). HMRCs basic conditions for TTP are:
• HMRC is satisfied that the taxpayer is genuinely unable to pay their tax on time;
• The taxpayer can keep up with the payments they are offering to make;
• Other tax bills are capable of being paid as they arise;
• Any outstanding tax is paid off as quickly as possible
TTP arrangements will not be agreed solely to stop a business from going bankrupt, where HMRC is the major creditor and the business is relying on not paying its tax to stay afloat. Nor will HMRC agree TTP only to project jobs or a particular activity or industry.
Is that so?
HMRC denies that it has ‘tightened up’ on TTP. Instead, HMRC blames an increase in the proportion of TTP applications not meeting the above conditions, e.g. businesses which have had a succession of TTP arrangements, or which have failed to keep up the terms of previous arrangements. Refusals in 2011 (up to the end of August) represented 14% of total applications.
Despite HMRC’s claims to the contrary, there is anecdotal evidence that HMRC is taking an increasingly tougher line. Firms have outlined to me instances where HMRC has by-passed them as agent and contacted the taxpayer directly to pursue outstanding tax liabilities. I also recently queried with my local ‘Working Together’ group in Manchester whether HMRC is denying TTP arrangements where companies have a history of dividend payments (as had previously been reported on AccountingWeb). Whilst it was agreed that this matter would be ‘escalated’ to a higher level, HMRC has yet to reply or make any official announcement of its policy on this issue at the time of writing to my knowledge.
HMRC devotes a whole section of its Debt Management and Baking Manual to time to pay arrangements. HMRC generally seeks to distinguish between taxpayers who ‘can’t pay’ and those who ‘won’t pay’ – TTP arrangements may be extended to the former but not the latter. TTP arrangements typically span a few months or possibly longer (e.g. for business taxes), although TTPs lasting over a year are only agreed in “exceptional cases” (DMB800040). Interest will invariably be charged whether TTP is agreed or not.
Guidance on how HMRC distinguishes between ‘can’t pay’ and ‘won’t pay’ taxpayers is included at DMBM800050. In general, it is good practice before speaking to HMRC about TTP arrangements to read their guidance on the subject, and to ensure that HMRC’s staff adheres to their own guidelines without imposing further conditions for TTP.
Late Payment penalties
The HMRC briefing on TTP states that if an arrangement is agreed, HMRC will remove any surcharges or penalties that would otherwise have arisen, where TTP is agreed before any surcharges or penalties become due.
It should be noted that this treatment is statutory, not concessionary. Under the recently introduced penalty regime for late tax payments, the law requires that HMRC must suspend late payment penalties if certain conditions are satisfied (FA 2009, Sch 56, para 10) (Note - a similar rule applies in respect of the late payment surcharges regime applicable to tax returns up to and including 2009/10, where the TTP arrangement was made on or after 24 November 2008 (FA 2009, s 108)). These conditions are broadly as follows:
• The taxpayer must approach HMRC before becoming liable for the penalty;
• HMRC must agree to the ‘time to pay’ arrangement; and
• The taxpayer must adhere to the agreement and comply with any conditions of the arrangement.
If the taxpayer breaks the agreement (i.e. by defaulting on payment of the tax, or by failing to comply with any conditions of the time to pay arrangement) HMRC may impose the suspended penalty.
Mark McLaughlin CTA (Fellow) ATT TEP