How to negotiate Time to Pay in current climate
Jennifer Adams explains the situation as it currently stands with regard to tax payments under the "COVID-19 Help for Business" scheme.
"I have asked HMRC to scale up the Time to Pay service, allowing businesses and the self‐employed to defer tax payments over an agreed period of time. Starting today, there will be a dedicated helpline with 2,000 staff ready to help." – Chancellor of the Exchequer, Budget 2020.
Over the last week, many accountants will have been taking calls from clients worried about their ability to pay their past or forthcoming tax bills. To help those taxpayers the chancellor announced a 'scaling up' of the 'Time to Pay' service and deferment of tax payments but in doing so, he has added more confusion to what is already a difficult situation.
HMRC Time to Pay helpline
This department is separate from the Debt Management and Banking department and each have their different remits. The special Time to Pay department referred to by the chancellor in the quote above is effectively a call centre and has been set up purely to agree deferment of tax.
Any taxpayer can apply and an agent can ring on the clients' behalf. For once you will not have to wait long for the call to be answered as when the author rang, the operator said that my call was the first one they had taken in 55 minutes.
The helpline operators have a checklist of questions that they ask including, “What impact has the coronavirus had or will have on your tax affairs?”. The completed form is then checked and the agreement confirmed. It will not usually be refused. The deferment is for the maximum of three months and interest is payable. The caller is advised to pay what they can rather than nothing, if possible.
With taxpayers able to take advantage of the VAT and July income tax deferral schemes automatically, the only taxpayers ringing the helpline are – and should be – those with past corporation tax bills that cannot be paid or those who know they cannot pay the next corporation tax or PAYE ‘month 12’ bill.
The Debt Management and Banking Department
This department is the one that agrees instalment arrangements.
The Time to Pay scheme, as operated by this department, is not new. In fact, it has been available to taxpayers since 2008.
On telephoning this department, the author was advised that again this departments' remit has been extended under the coronavirus scheme as follows:
- Should a client already be paying under a Time to Pay scheme, they will usually not be granted another scheme. However, under the coronavirus scheme, should an alternative instalment arrangement be required they can contact this department and discuss a deferment of direct debit payments for up to three months; this will normally be granted so the next payment will be due on 5 July.
- Should the taxpayer know the amount of tax underpayment – and also know that they will be able to make payments – they can agree an original Time to Pay instalment arrangement with no penalties being levied - but interest will accrue.
- HMRC are obviously currently wary of agreeing to any new instalment plan as "no-one knows what their situation may be in three months".
Should a taxpayer either wish or need to set up an instalment payment plan after the deferment payment months have passed, the only option for instalment payments will be for the original Time to Pay scheme (assuming that the chancellor does not extend the coronavirus scheme).
Original Time to Pay
In comparison with the above, under the usual Time to Pay arrangements, instalments are paid by direct debit on a monthly basis usually over six months. Agreements have been applied over longer periods but it is not guaranteed.
Details of the scheme can be found in the "Debt Management and Banking Manual".
One of the most important sections of this manual is at DMBM800510 which confirms that agreement is usually only considered for past liabilities after the accounting period/year has ended. The reason being is that it’s HMRC's belief that it is unlikely that the taxpayer can see into the future and prove that future liabilities cannot be paid.
Whether after the coronavirus scheme months have passed HMRC will take a more lenient view of underpayments of tax remains to be seen but, under the original scheme, more information has to be presented such as details of income and expenditure and other financial statements (loans, credit card payments, etc). Evidence is required that the financial distress is short‐term, that you can demonstrate a future improvement in cash flow and with such information, HMRC will assess the taxpayers’ ability to pay a set amount each month.
The original scheme required that current and future liabilities be paid on time. Again, whether this ruling will apply in the future is anyone's guess.
What advice should be given?
As the helpline staff advise, the deferments are just that ‐ a 'delay', not a 'present from the taxman'. Many taxpayers are not appreciative of this fact.
Advise clients to defer by all means but clients must be made aware that self assessment taxpayers, in particular, will have large tax bills just after Christmas. However, those clients who have been forced to actually shut down their businesses will probably not be able to pay when the time comes in any event.
In view of the payment timing, it might be an idea for all businesses that can do so to apply for the Business Interruption Scheme whatever their circumstances so they can have an extended loan towards paying their bills (including forthcoming tax bills).
Many accountants are not charging for their advice in relation to the coronavirus and have lots of non‐chargeable time clocked up already. However, it might make clients more appreciative of the situation if each received a schedule of when payments will be due so they can see the impact on their finances at the end of the year.
HMRC helpline number: 0800 024 1222 – in addition to other usual HMRC phone contact numbers.
Begbies Traynor Covid-19 Help Centre for UK Businesses: 0333 009 6852