Life sometime has a habit of throwing something of a curveball and, despite good intentions taxpayers may not always be able to pay their tax bills on time.
While both the self-assessment and corporation tax system offer the cash flow benefits associated with paying tax sometime after the associated income has been earned, this does require an element of discipline on the part of the taxpayer in putting aside the necessary funds. It is hardly surprising, therefore, that come payment day not all taxpayers will have the necessary funds available to ensure that their tax bill is paid on time.
Fortunately, HMRC have the discretion to help taxpayers (both individuals and businesses) who find themselves in this position by allowing them to agree a ‘time to pay’ arrangement.
What is a time to pay arrangement?
A time to pay arrangement allows viable taxpayers who are unable to pay their tax bill by the due date to make payments in settlement of that bill over a period a longer period at a rate they can afford. However, interest is charged on payments made after the due date.
There is no standard agreement – the arrangements are tailored to the needs of the taxpayer. Typically, a time to pay arrangement will allow the taxpayer to pay their tax bill in instalments over a few months. Sometimes HMRC will be allow the payments to be spread over a longer period, although time to pay arrangements lasting more than a year are rare.
Can’t pay vs won’t pay
HMRC distinguish between those taxpayers who can’t pay and those who won’t pay. Those who fall into the `can’t pay’ category are those who want to make the payment but who currently lack the means to do so, but who have the ability to make the payment over a longer period. It is this category of taxpayers for whom HMRC may agree a time to pay arrangement. In determining whether the taxpayer has the ability to pay now, HMRC recognise that it may be desirable for a business to meet certain costs ahead of paying their outstanding tax bill – such as payments to staff and to suppliers to enable the business to stay afloat.
The other category of non-payers is the `won’t pay’. These are taxpayers who have the means to pay their tax bill but choose not to. If HMRC conclude that a taxpayer falls into this category, they will not agree a time to pay agreement.
Trap:
A time to pay arrangement cannot be used simply to delay paying tax.
Setting up a time to pay arrangement
Time to pay arrangements are discretionary and the taxpayer has no right to payment by instalment. If you anticipate problems paying your tax bill, it is best to contact HMRC before the date on which the payment is due, rather than waiting until it is late.
Tip:
Contacting HMRC before the due date will generally garner a more sympathetic response than waiting until it is late and HMRC are chasing you for payment.
A time to pay arrangement can be agreed over the telephone, by calling HMRC’s Business Payment Support Service on 0300 200 3825. Before calling, make sure that you have the following information available:
- your tax reference number;
- the amount of the bill that you are unable to pay;
- the reasons that you cannot make the payment;
- what action you have taken to get the money together (e.g. borrowing from family, working extra hours, bank loan, etc.);
- how much you can pay immediately;
- how long you need to pay the balance; and
- your bank details.
HMRC will ask various questions about your income and expenditure, and what action you are taking to sort the situation out so that future payments can be made on time. If they suspect that you have the means to pay, they will seek to take payment over the telephone by direct debit, debit or credit card.
If they believe that you genuinely cannot pay the tax bill at the moment, but you will be able to so in the future, they will agree a payment plan.
Practical Tip:
If you have not agreed a time to pay arrangement before the due date, contact HMRC as soon as possible. Do not bury your head in the sand – HMRC will chase you.
Note that, since 3 August 2015, payment by direct debit has been mandatory for all new time to pay arrangements. However, HMRC will not revisit arrangements agreed before this date where direct debit arrangements are not in place.
