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A businessman making an online payment with credit card AccountngWEB VAT: HMRC rolls out online self-serve time to pay -
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VAT: HMRC rolls out online self-serve time to pay

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HMRC has recently opened an online ‘time to pay’ facility, which is designed to automate and simplify for certain situations.

23rd Jun 2023
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Sometimes cashflow can become a major issue for a business, and VAT is an area where cashflow matters the most and sometimes a business has a large VAT liability owed to HMRC but not the cash in the bank to pay it.

Even though HMRC has introduced a new penalties regime, it is still good practice to enter into a time to pay arrangement with HMRC before the imposition of penalties occurs.

Now certain businesses can set up a VAT payment plan online.

Background

A VAT registered business is an unpaid collector of taxes on behalf of HMRC, charging VAT to customers and paying it over to HMRC.

As most businesses operate quarterly VAT return periods, it can mean a business owes VAT to HMRC before it has itself collected all the VAT from the customer (especially when invoicing close to a VAT quarter end).

So as well as being a tax collector, a business can often be a lender (to HMRC) until such time as the business can reclaim its input tax back from HMRC.

Current process

Under the current process, the taxpayer contacts the business payment support service and after passing the security questions, the taxpayer details how much they owe, the reason it cannot be paid in full on the due date and then proposes a fair and reasonable payment plan. HMRC may then ask further questions and will almost certainly propose a counteroffer which is often less favourable.

From experience, HMRC will always say they cannot allow the debt to be paid over more than 12 months (it can) and more often will try and limit the payment terms to three months. It is often a case of asking for nine months, being offered three months and settling on six months. It does depend somewhat on who you speak to on the day. 

I’ve had two associated companies, both owing roughly the same amount of money and on calling HMRC on the same day, obtained an 18 month plan for one but only six months for the other as HMRC was adamant that “we don’t do anything over 12 months”.

Online process

The online process comes with a few conditions that must be met before you can apply:

  1. The latest VAT return has actually been filed
  2. The amount owed to HMRC is £20,000 or less
  3. Application is made within 28 days of the deadline
  4. Business doesn’t have another active time to pay agreement or any other debts with HMRC
  5. Maximum repayment term is six months

That is quite a set of conditions. The £20,000 limit is clearly designed to minimise risks to HMRC and doesn’t open the doors for large corporates to seek a time to pay just because it’s there to have. 

Other than that, the other conditions are logical and follow the same requirement if you were calling to seek a time to pay agreement for over £20,000.

Assuming the conditions are met, the taxpayer logs in via their government gateway and as is now the default for HMRC, you must use this specific link.  

There is no menu option if you just login to your gateway. You can login to gateway first and then click the above link or it’s just easier to click the link and then login.

If you have outstanding returns or the value of the VAT return filed is over £20,000, the first screen you see will be to say you are not eligible to use the online scheme and it prompts you to call the HMRC payment support service instead.

If the conditions are met, you are presented with a series of screens/questions which are answered in turn, selecting length of payment plan, etc.

The Covid years

Taxpayers may recall that during the Covid lockdown period, HMRC allowed taxpayers to defer their VAT returns for one quarter (March-June 2020) which automatically allowed taxpayers to not pay that quarters VAT return until March 2021. Thereafter, the taxpayer could opt into a form of time to pay agreement. That was a one-off scheme and is not related to this new online time to pay process.

Summary

Another process goes online in HMRC’s shift to digitally communicating with taxpayers. I think the process works well and certainly simplifies what can be a daunting experience for those not comfortable with talking to HMRC.

From an agent perspective, it can also make the process slicker and quicker, the downside in my view is that taxpayers may see the online process as a means to exclude their agent, to save money perhaps. 

The risk here is that a time to pay agreement is but one tool in which to deal with cashflow problems. And cashflow problems usually indicate an underlaying issue with the business, although not always. As VAT doesn’t belong to the business and has come from the customers pocket, an inability to pay often requires a deeper understanding of why, rather than just the quick get out clause of seeking time to pay.

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Replies (2)

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By Hugo Fair
23rd Jun 2023 22:40

Thanks ... a helpful and clear article, Jason.
I particularly liked the salient reminders (which of course we know but many all too often forget) that VAT makes a registered business both an unpaid tax collector on behalf of, and a lender to, HMRC.

Out of interest do you see (this particular example of) the "shift to digitally communicating with taxpayers" as broadly beneficial or not?

I rather like your example of (pre-digital) 'street-market' negotiations:
"It is often a case of asking for nine months, being offered three months and settling on six months (but) it does depend somewhat on who you speak to on the day."
I've always been comfortable with this way of doing business (reflecting no doubt my non-British antecedents) - but I can see that the online route will lead to greater consistency (unfortunately by picking the worst outcome as the default)!

Thanks (3)
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By darren.austin
26th Jun 2023 07:23

Thanks Jason.

There is a further condition that you have to use accruals rather than cash accounting. Presumably HMRC don't want to automatically provide a credit facility if you have collected the cash.

Thanks (3)