Among the HMRC changes currently being noticed is that the tax office is less willing to agree Time to Pay arrangements, which help businesses spread their payments. New powers also mean it can issue demands, forcing businesses to pay up and ask questions later.
The change in approach could be a response to the more stable economic conditions and evidence that the pendulum is swinging back in favour of a tougher stance on paying taxes.
Upward revisions in the latest UK economic growth forecasts may have contributed to a more optimistic outlook and in this context the government, in the guise of HMRC, is less willing to make exceptions for businesses that are not paying their taxes on time.
In the past, business owners could expect to be treated sympathetically when contacting HMRC to alert them to their cash flow difficulties. For example, a business owner might have contacted the tax office, explaining that they would be unable to pay their quarterly VAT return.
Instead, they could offer a payment plan which would be accepted immediately, with no questions asked. At this time, offers of payment terms based on 12 months were common practice.
The situation has changed and businesses, regardless of size, are expected to meet their tax payments on time in all but exceptional circumstances. Despite this, it is still possible to secure a Time to Pay arrangement if certain procedures are followed. For example, the ability to demonstrate a strong trading history can be helpful, particularly where it is supported by a record of paying taxes on time.
Evidence of a strong order book and underlying profitability, indicating an ability to meet payments over time, will also help to create a positive impression.
‘Cashflow is king’ is one of those business mantras that we all repeat but never stop to question. But have you ever wondered why it’s king?
As well as compiling a strong set of financial information to support their request for a Time to Pay arrangement, businesses should aim to demonstrate that they are prioritising cash management and resourcing initiatives such as preparations for Making Tax Digital and Brexit-related contingency plans. Such forward-thinking is likely to be viewed favourably by HMRC.
To secure a Time to Pay arrangement, the business should also prepare an up-to-date and realistic payment plan. Above all else, it is vital that the terms set out in the payment plan are achievable and that the business can demonstrate its ability to meet the payments.
Instead of expecting HMRC changes to allow a positive response to a telephone request, businesses should be prepared for far greater scrutiny of their financial situation. Increased use of digital accounting and online payment systems have introduced greater transparency and allowed the government to accelerate the payment of taxes.
Whereas once a business might have been able to “manage” its cash flow troubles by prioritising one creditor over another, HMRC changes on access and reliance on up-to-date financial information means there is now an expectation that tax payments must be made on time.
If a business has already defaulted on a tax payment or is expecting to do so, it is important to seek advice from an insolvency practitioner at an early stage. With Time to Pay arrangements harder to come by and rarely extending beyond three to six months, the situation can escalate quickly.
If HMRC changes its mind and decides to take recovery action, an inspector could visit the business premises to draw up a schedule of assets, which might form the basis of a walk-in possession agreement.
Depending on what happens next, HMRC could remove assets from the premises. Alternatively, if the debt is certain, as is usually the case in such circumstances, it might issue a statutory demand followed by a winding-up petition, ultimately driving the business into compulsory liquidation.
For some businesses, cash flow difficulties can occur with little warning and for reasons that are outside of the management team’s control. For example, if a key customer becomes insolvent or enters administration just before paying a £100,000 invoice, there is little the creditor can do to recover the money they are due in the short-term.
In these circumstances, it should be possible for the business to secure a Time to Pay arrangement as long as it takes the right approach, supported by the right documentation. Even in these circumstances however, advice can play an important role in helping the business to understand its options.
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Simon Underwood is a business recovery partner at accountancy firm Menzies LLP
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