Leaving Enough Time to Pay

Businesses are once again considering Time to Pay arrangements to help mitigate liquidity challenges.

Businesses consider Time to Pay arrangements.

Time to Pay (TTP) arrangements were first introduced around 2008, but rose to prominence during the COVID-19 pandemic when HMRC adopted a more lenient approach to payment of tax liabilities to support struggling businesses. After a brief hiatus, we are once again seeing an increase in companies exploring TTP arrangements to provide the breathing space required to resolve short-term cash flow difficulties and put in place more sustainable funding structures. Our experience advising clients in these situations shows that early engagement and putting forward a credible proposal are key to achieving a successful outcome with HMRC.

Businesses struggling with cash flow challenges may benefit from approaching HMRC about a potential TTP arrangement. This involves reaching an agreement with HMRC to repay any outstanding corporation tax, PAYE and VAT liabilities over an extended timeframe, usually in installments over a three to 12 month period. The duration of any deferral agreed depends on the business’ current circumstances and future prospects, tax compliance history, and the perceived risk to HMRC. However, it is not uncommon for HMRC to reject a TTP request if a company’s risk profile is too high.

Early engagement and having a workable proposal are key to securing a favourable outcome with HMRC. Businesses should expect to provide detailed financial information including commentary on recent trading, measures taken to improve performance and robust cash flow forecasts that demonstrate an ability to repay all amounts deferred. An independent review of the trading forecasts and cash flows often adds weight to a proposal.

HMRC may also seek assurances that the company has exhausted all other sources of funding, and that a tax deferral request under the TTP scheme is effectively the last resort. It is therefore important that the company engages with its other key stakeholders (e.g. banks, landlords, trade creditors, shareholders etc.) in parallel. Under the right circumstances, HMRC can be quite accommodating to such arrangements and according to their own figures, over 90 percent of TTP arrangements agreed are completed successfully. Per HMRC’s guidance, “We look at what you can afford to pay and then use that to work out how much time you need to pay.” Essentially, HMRC want to ensure that they are repaid as soon as possible and tax liabilities are deferred no longer than necessary.

If a TTP agreement is reached, it is imperative that repayments are made in full and on time, otherwise HMRC may cancel the arrangement and call in the full amount of the debt. In a worst case scenario, HMRC may even commence proceedings to wind up the company. It is typically only possible to secure a TTP agreement once (excluding any arrangements that were put in place during COVID-19), however in exceptional circumstances we have helped clients secure back-to-back TTP arrangements.

If your business is facing financial pressures, KPMG’s Special Situations and Tax teams can advise whether a TTP arrangement could be a viable option.

In certain cases, an alternative approach may be more suitable to your circumstances. Our specialist teams can be mobilised quickly to rapidly assess all available options and implement the optimal solutions, freeing up management time to focus on running the business.