Negotiating Time-to-Pay Arrangement

Negotiating Time-to-Pay Arrangement

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Client recently had VAT inspection resulting in an assessment of additional VAT to pay, and needs time to pay this VAT and some CT. HMRC have asked for a proposal in writing. One of the reasons the client needs time to pay is that one of the two director-shareholders has another company that is in trouble and has had to withdraw virtually his entire DLA balance to fund it. I understand that if the other business went under, the bank would chase him for their money, and may try to take funds from the company which is my client. I also understand he can take no more money from my client company for this purpose.

Is this the sort of thing I should put in the letter with the proposal, or would it have an adverse effect?

Replies (16)

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By petersaxton
08th Feb 2012 15:38

Try answering your own question

What do you think?

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By chatman
08th Feb 2012 15:59

???

That's a strange response Peter. I would have thought that most people posting questions here would already have had a go at answering their question before spending the time writing it down.  I don't know the answer to my question; that is why I asked. My guess would be that you think the answer is obvious,  and that I clearly cannot have even tried. The truth is, however, that I am not the sharpest knife in the drawer, and need help.

The positive side is that it shows that it is a one-off item that cannot be repeated to HMRC's detriment. On the negative side, HMRC  might see it as money withdrawn by the director-shareholder at their expense. A pro and a con. Hence my posting the question.

So, there's what I think. What do you think? Your advice is usually good; let's have it.

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By petersaxton
08th Feb 2012 17:03

HMRC point of view

HMRC will say that the company shouldn't let a director take funds out of the company before paying the tax bill.

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By chatman
08th Feb 2012 17:54

Thanks Peter.

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By zebaa
08th Feb 2012 19:12

Agree with Peter

While I agree with Peter's comment, my suggestion would be to stress other points like reduced cash-flow (as long as you can back this up). You may also be able to stress that this is a short term problem rather than something which will continue and perhaps lead to the company's demise.

In effect you are trying to put together something like 'if you will only do this, we can get to the green fields beyond'. Any mention of endless mud is thus best avoided.

 

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Chris M
By mr. mischief
08th Feb 2012 19:55

commercial logic

it would be interesting to know what other folk think of my own approach, which is to imagine George Osborne sitting beside me and put in writing the commercial position of UK PLC.

Two examples:

1.  I had a VAT debt chasing meeting in November.  Very aggressive, when I explained why we were paying them nothing that day they left saying the winding up petition would be imminent.  I wrote with the same information I'd given in the meeting:  Client selling her rental property to clear tax bills, imminent £9k insurance payout, mitigation for client in terms of flooding and illness.  I also said that the commercial logic of winding up a solvent company with 13 staff for a £15k VAT bill despite the fact that the director was selling a property to clear the debt escarped me.

The result of this was no winding up petition.

2.  Just today I had a client very worried about them not accepting a 9 month payment plan of corporation tax bill.  I explained to HMRC in writing 2 weeks ago that if they wound up this company - which has £200 or so of assets - then the country loses £3k in corporation tax plus whatever HMRC spends winding up the company.  Or they can have their £3k in full by October.

I explained this again by phone today and stressed the point that in my view UK PLC would be £3k or more worse off if they pressed ahead.  They called back ten minutes later accepting my client's proposal.

In my view - interesting to get other views - I have managed to put the officers and their line managers in a difficult position if they proceed with aggressive tactics.  Not only will the Treasury be worse off, there is written evidence that those specific HMRC people knowingly pressed ahead with a plan which would make the Treasury worse off.  Not a nice place to be right now within HMRC, I suspect.

 

 

 

 

 

 

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By petersaxton
08th Feb 2012 20:06

Positive or negative

I think the proposal to show that payment can be made will swing it.

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By chatman
08th Feb 2012 20:12

Just to be absolutely clear...

Thanks everybody. Just to be clear, the other director withdrew his DLA before they even knew they were going to get a VAT inspection. Would it help if I made this clear in the letter, or would they still see it the same way? One director takes a £50k annual salary; and total dividends of £10k have been paid since 2004. There is no question of anyone taking the mickey here.

There is no "endless mud"; the issues we plan to raise are ones that are clearly one-offs, without raising the suggestion that financial planning is so bad that there will be endless one-offs.

Not sure what the bailiffs could get anyway; all the moveable assets are owned by the good director. If it came to court, the client could show a payment plan is in place and payments are being made. Not that we want it to go to court, or to have  to explain to the bailiffs that there is nothing to take.

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By chatman
08th Feb 2012 20:20

Unexpected Costs

Just got an email from the client asking me to cite emergency re-wiring costs, and resultant redecorating. I am a little wary of citing unexpected costs as they could suggest poor budgeting/poor financial control. Could I get away with one unexpected cost or should I stick with what I have (significant capital investment over the last two years, expected to produce sufficient profits to meet the TTP schedule)?

Sorry to go on, and to feed you little bits of info at a  time. I think you have it all now.

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By petersaxton
08th Feb 2012 20:20

Proposal only

I would have thought that it would be better if the proposal was simply that and didn't discuss the reasons. HMRC may well accept the proposal. If they don't you can then explain any special circumstances. If the client simply pays under the proposal HMRC may not take matters further because the payments would undermine their actions.

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By chatman
13th Feb 2012 17:12

Done

Left out the DLA issue, and got the client to make an initial payment on the day of the letter and bring forward the next installment (he originally wanted to make it on 1st April). I'll let you know how we get on.

Thanks everyone for your help.

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By pauljohnston
14th Feb 2012 12:27

One idea which may have helped

I recommended to a client that they write the letter (rather than us) and include a cheque rather than making the payment via BACs.  Letter and money made the difference!

We gave client a draft to use.

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By chatman
14th Feb 2012 13:15

Letters to be sent by the client

@pauljohnston - That sounds like a good idea, but whenever I give a client a letter to sign and send, they tell me they would rather the letter came from me, as they feel it has more weight coming from an accountant. Might try including a cheque in the future though.

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By chatman
20th Feb 2012 16:22

We asked for 18 months; they've offered us a year.

I think your advice was good everybody, because they have offered us a year, which I understand is quite long. The bad news is we had  asked for 18 months.  The person I spoke to said they would issue a winding-up petition if their offer of 1 year was not accepted.

If the client cannot agree to this, I will write along the lines suggested by mr. mischief.

If they still issue the petition, I will hope to be able to show the court a record of payment and the futility of winding up.

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By chatman
21st Feb 2012 01:01

What does the court consider in an appeal against a winding-up?

When considering an appeal against a winding-up petition, does the court take into account  how effective a winding up will be in recovering a debt? For example, if the net realisable value of the available assets is far less than the amount of the debt, installments are already being paid and, as mr mischief points out, an enormous amount of revenue will be lost in future VAT, CT, PAYE and NIC, would the court take this into account when deciding whether to grant the petition?

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By chatman
24th May 2012 19:56

.

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