What happens if my Time to Pay Arrangement fails or is breached?

Defaulting on a Time to Pay Arrangement is serious but there may still be options available to you

If you’re struggling to pay your company’s tax bill then you may be able to enter into a Time to Pay Arrangement with HMRC that gives you more time to pay what you owe. 

Although negotiating a Time to Pay Arrangement with HMRC can be challenging, in many respects, this is the easy part. This is because, once the Time to Pay Arrangement is agreed, you’ll not only have to pay HMRC the money you owe in instalments over the next 6 to 12 months, but you’ll also have to pay your ongoing VAT, PAYE and corporation tax bills on top of this. And if you don’t keep up with the repayments, your HMRC Time to Pay Arrangement will be in default and this will be classed as a breach of the arrangement.

What if you’re unable to stick to the arrangement?

If you fall behind on your VAT, PAYE and corporation tax payments, HMRC will usually do what it can to give you more time to pay. This is particularly true if you have conducted your tax affairs well in the past and have paid what you owe on time. However, if you miss payments on a Time to Pay Arrangement, HMRC will be far less flexible. 

The consequences initially could be that HMRC cancels the failed Time to Pay Arrangement and also tacks on penalties as well. If you default, it will also become increasingly difficult to reach a similar agreement with HMRC again as it will lose confidence in your business’s ability to pay. 

At this point, the situation can escalate quite quickly. If you are unable to reach a new agreement with HMRC and cannot pay the money you owe, it may take legal action against you. 

One way to do that is through a Distraint Order Notice, which gives HMRC the power to seize company assets that it can sell to recover the debt. Alternatively, in the most severe cases, following the failure of a Time to Pay Arrangement, HMRC could issue a winding up petition against the business, which could lead to the compulsory liquidation of the company and also have serious consequences for the directors personally. 

What should I do if I receive a Distraint Order Notice?

If you fail to keep up with a Time to Pay Arrangement and HMRC chooses to make a distraint order against you, an HMRC officer will come to your business premises without warning to discuss what you owe and how you intend to repay it. They will also take an inventory of your assets and give you the distraint notice to sign, which prevents you from removing or disposing of the assets that are under distraint. 

From this point, you have just five days to pay the sum you owe to HMRC. If you fail to do so, it will take action to seize and then sell the assets at a public auction to recover the debt. 

If a HMRC officer comes to your business premises unannounced, always try to meet them outside the premises. Without a magistrate’s warrant they are not allowed to force entry to your premises, so that could buy you some time to seek professional help. 

What should I do if I receive a winding up petition from HMRC?

If HMRC loses all confidence in your ability to pay the tax arrears and doesn’t want to incur further losses by allowing your business to continue to trade, it can choose to issue a winding up petition against you.

If the debt remains unpaid and you have no grounds to challenge the petition, the company can be forced into liquidation, the business’s assets will be sold and the company will be closed down.

To make matters worse, HMRC is also increasingly using Personal Liability Notices alongside winding up petitions. A Personal Liability Notice has the effect of making company directors personally liable for tax debts the business cannot pay.    

What are the alternatives to a Time to Pay Arrangement?

A Time to Pay Arrangement could be just what you need to escape a short-term cash flow crisis, but only if the business is viable and can be profitable over the longer term. To reduce the risk of defaulting, always make sure the repayments you agree to are manageable. However, a Time to Pay Arrangement is not always the best option for every business. 

If your tax liabilities are large, if there are also other creditors you’re unable to repay, or you feel there may be a risk that you would breach a Time to Pay Arrangement, this may not be the right choice for you in your situation. In this case, an alternative recovery plan or even choosing to liquidate the business voluntarily could be better options. 

Get quick, confidential advice

Contact us for a free consultation if you’re struggling to make your Time to Pay Arrangement repayments or have an arrangement that’s already failed or breached. We can provide fast and comprehensive support to help you negotiate with HMRC and consider your other options.