Time is ticking on Time to Pay
With tax enquiries being suspended whilst HMRC’s attention is engaged elsewhere, Fiona Fernie examines why taxpayers not using the time to organise outstanding enquiries may be asking for trouble later down the line.
As lockdown continues, HMRC is increasingly notifying taxpayers and advisers that ongoing enquiries are being temporarily suspended unless otherwise requested. The suspensions extend beyond routine compliance checks to various enquiries, including cross-tax enquiries and even cases of significant tax loss for HMRC not considered as tax fraud.
Whilst taxpayers rejoice at being ‘left in peace’ for a few weeks, significant benefits to the interruptions seems unlikely. In most cases, it is wise to deal with HMRC’s concerns, despite the current circumstances.
It is important to remember that this is only a temporary suspension. At some point, HMRC will recommence all enquiries and taxpayers need to comply with HMRC’s guidelines and timelines. It may be a very tall order for taxpayers struggling to revitalise their businesses in the aftermath of the coronavirus, and at a time when the distraction of focus from business management could be devastating.
Although furloughed employees cannot be involved in HMRC’s investigations of their employers, many taxpayers have more time to deal with the enquiries now than when restrictions are lifted. Pausing the investigations may just store up problems for the future. After all, if tax is due – it will still be due when this is over – with additional interest.
Time to Pay
HMRC is currently focused on the Time to Pay (TTP) taxpayers will need. It has a dedicated helpline manned by 2,000 staff dealing with applications. HMRC is likely to agree appropriate TTP arrangements if owing taxpayers have cashflow difficulties exacerbated by the pandemic.
However, taxpayers need to bear in mind that tax liabilities, like the enquiries HMRC are offering to put on hold, are deferred – not extinguished. To obtain TTP, they will need to provide the reason for TTP, the impact of COVID-19 and a repayment plan which will need to include:
- Explanation of the financial hardship;
- The proposed timescale for deferral of the tax;
- Why the payment plan is affordable (this could be based on either future anticipated income or (for example) the proceeds of selling an asset;
- Explanation of the impact of the interaction with other debt financing (ie being able to make appropriate payments on both);
- Provision of evidence to show that costs are being well managed.
For businesses, this will likely entail provision of management accounts and preparation of a cashflow forecast. They may also be asked to show the level of their cash reserves. Individual taxpayers are likely to need monthly income and expense statements, and a statement of personal assets and liabilities.
Requesting extended TTP
The longer the period requested for TTP, the more evidence HMRC is likely to require. As nobody knows how long the impact of COVID-19 will last, it may be possible to renegotiate TTP if the original agreement cannot be met. In which case, taxpayers should notify HMRC of the difficulty as soon as possible, before missing a payment.
However, it is important to realistic with the difficulties of predicting cashflow in the current circumstances, and in presenting proposals for a TTP agreement. HMRC will be unlikely to consider the renegotiation of a TTP arrangement without significant further justification and explanation as to how the payments will eventually be met.
‘Put the house in order’
For those experiencing a significant drop or complete cessation of business activities, and are making claims under the Government’s job retention scheme like CJRS or SEISS, there is an additional incentive to ‘put the house in order’.
Head of HMRC Jim Harra has already publicly admitted that the two schemes have significant “fraud risks” associated with them, and it seems inevitable that HMRC will undertake numerous tax enquiries and reviews to ensure that they have not been abused, once the initial COVID-19 confusion has subsided. It is therefore vital for businesses to ensure that they correctly document and evidence any claims made for CJRS grants for furloughed employees to enable them to deal with enquiries from HMRC and allay any concerns in respect of these claims.
The evidence is clear
The evidence required is likely to overlap with TTP evidence in demonstrating the impact of COVID-19 on the business and narrative justifying the furloughing of staff. Clear calculations backing up the amount claimed under CJRS, and formal written paperwork between employer and employee recording furlough arrangements and parties’ agreement to these are also likely to be required. Without this kind of documentation to support the validity of claims, companies risk having to refund the money in future – plus potential interest and penalties or surcharges.
The message is clear: there is a lot that taxpayers can do now to ease the pain of an enquiry later during more urgent and pressing times. It is sensible for the majority of taxpayers who are able to progress current open enquiries to do so in line with the old adage ‘don’t put off till tomorrow what you can do today’.
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Fiona Fernie is a tax dispute specialist and joined Blick Rothenberg in September 2017. She has over 30 years’ experience advising on all types of direct tax, including tax investigations and resolving tax disputes with HMRC. Her clients include private individuals, trusts,...