What are the available options for directors when facing VAT and PAYE arrears?

Updated: 17th February 2021

HMRC provides a degree of assistance to some companies in arrears. It is not an uncommon event for a company to default on its tax liabilities, and if your business has become delinquent on VAT and PAYE, they may be able to offer extra time to pay.

A Time to Pay arrangement, or TTP, can provide the help you need, but you should contact HMRC as soon as possible to stand a better chance of it being granted.

Other options also exist that could help your company escape tax debt, potentially including asset-based lending that provides a cash lump sum. Alternatively, a formal restructuring of your company’s overall debt within a Company Voluntary Arrangement (CVA) might be more appropriate.

Begbies Traynor has vast experience of negotiating with HMRC on behalf of clients needing more time to pay. Our licensed insolvency practitioners are available to help.

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How does a Time to Pay arrangement work?

When negotiating for extra time to pay, directors need to put forward a detailed and reliable business case to HMRC. When you contact them, it is vital to be able to explain the reasons why your company has reached this position, and to know and understand your trading figures.

HMRC will only offer time to pay to companies in genuine need of financial assistance, and are thorough in establishing the background to each company’s situation. A solid business case to persuade HMRC in your favour would include:

  • Projected sales figures for the next six months at least
  • Cash flow and profit forecasts for the same length of time
  • Information as to how the company will cut costs to save money, or otherwise operate under stringent conditions

Time to Pay arrangements are generally offered for between three and six months, but up to 12-months’ extra time may be available in certain instances. Needless to say, if a single payment default occurs, HMRC are highly likely to begin winding up proceedings against the company.

Is your company eligible for TTP?

  • If HMRC believes your financial situation is temporary, and that you are not deliberately avoiding or delaying payment, they may offer you this valuable arrangement.
  • You will be expected to keep up with your company’s current tax liabilities whilst repaying the arrears over time.
  • Your previous record of tax compliance is taken into account by HMRC when making a decision, as is how promptly you communicated your current problems.

Again, an element of trust comes into the equation – if you are proactive in seeking assistance to pay, and convey that your company is willing and able to meet its liabilities, you will stand a better chance of success.

It is often the case that professional input serves a company well in negotiations with HMRC. If they know that you have sought expert advice, they will be more likely to perceive your company as a lower risk, and give you the opportunity to pay over an extended time, albeit as short as possible for them.

Company Voluntary Arrangement (CVA)

By restructuring debt within a Company Voluntary Arrangement, directors are able to carry on trading with better cash flow, and no threats of legal action in relation to the debts included.

Tax debts can be included within a CVA, and HMRC will carefully assess the proposals before deciding on whether to vote in favour. During this time your company is protected from creditor action, and if at least 75% (by value) of creditors vote for the arrangement, you will pay a single monthly amount, rather than making numerous individual debt repayments.

Additional finance

Businesses with valuable hard assets such as property, vehicles or machinery, may be able to release their inherent value in return for a lump sum of cash which could be used to pay the arrears of tax.

Asset-based lending generally works on a sale and leaseback arrangement whereby the company sells the asset(s), but continues to enjoy full usage rights. Cash from the sale can be used to pay HMRC, and the lender is repaid over a fixed period of time.

These repayments are also tax deductible, but the asset must be wholly owned by the company to be eligible for this type of lending. 

Alternatively, you may wish to consider taking out a form of additional funding to improve cash flow such as a traditional bank loan or an invoice discounting or invoice factoring agreement. Our dedicated commercial funding team can talk you through your options and determine the most appropriate and affordable channel of finance for your business.

If you need help to negotiate with HMRC for more time to pay, or to make formal proposals for a CVA, Begbies Traynor can offer professional assistance. We also have contacts with over 50 alternative lenders around the country. Call our expert team to arrange a free initial consultation – we have over 70 offices nationwide.

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