23/05/2022
Our to .. what to do, how to handle it & a few things to consider
Help I have HMRC Arrears! Can a payment plan help me?
Normally you would think that this question would have a straight forward answer … but .. payment plans don’t always solve all debt issues and especially those relating to tax arrears.
In this article we explore what payment plans are, how they can help and how to assess if one is going to work with HMRC in control of the debt in question.
Firstly, let’s take an average SME business & look at recent debt statistics following the pandemic.
5.7 million SMEs in the UK in 2021, accounting for over 99.9% of all businesses.
The average debt of SMEs rose by a quarter, which has created a growing number of businesses in financial difficulties and under extreme financial pressure to meet ends meet.
A recent report by the Bank of England noted that lending remains “precautionary” and that many SMEs will have set money aside to tackle arrears, such as HMRC liabilities and supplier debts.
Those funds that may have been put ‘on one side’ may ultimately not be used for the intended purposes and as businesses struggle further, those funds are potentially being used just to survive – leaving debt/tax issues unresolved and escalating.
The number of SMEs with any debt has more than doubled. Around 757,000 companies (out of the approximately 2m that have UK bank accounts) now have some debt, compared to 305,000 before Covid.
33% of SMEs have debt levels more than 10 times their cash balance, or their cash balance is negative (ie they are using an overdraft). This has increased from 14% before Covid.
18% of SMEs have monthly debt repayments that are more than 15% of their income. This has increased from 3% before Covid.
10% of SMEs have both high debt levels and high debt repayments.
Late Payments and overdue Invoices are also a cause for cashflow issues for a lot of SMEs.
78% of UK SMEs that are owed money are being forced to wait at least one month beyond their agreement terms before being paid.
40% of UK SMEs that are owed money claim that large businesses are the worst late-paying offenders.
In the worst cases, late payments can contribute to business insolvency.
A recent survey found that 24% of UK businesses report late payments as a threat to their survival, the highest reported level across Europe.
1 in 7 small business owners have been left unable to pay employees because of cash flow issues. This equates to a huge 2.2 million people in the UK not being paid on time.
38% of small business owners who have suffered cash flow problems have been left unable to pay debts
On average, small business owners lose a whopping £26,000 by turning work because of insufficient cash flow.
“Cash is oxygen for small businesses and without it they cannot breathe. The combination of chasing invoices and bad payment practices mean small businesses run out of accessible cash. This has a real impact on their ability to take on new work, pay suppliers, their employees or themselves on time”
52% of small business owners have used personal savings or borrowed money from friends and family to keep their businesses alive.
26% stated their physical health would be better if debt was no longer an issue.
43% admitted that late payments affected their mental health, causing sleepless nights.
27% felt that they would be in a stronger position to grow their businesses if arrears could be under control again.
The above statistics only demonstrate a small portion of issues SMEs face, following the pandemic.
HMRC debt levels are now circa £39bn, compared to pre-pandemic levels of £16bn, and speaking as an agent, they are failing at recovering this debt and supporting those with tax arrears.
A report issued by the Public Accounts Committee, when referencing HMRC recovering liabilities states - The Committee says “to achieve this fairly, and without harming economic recovery, HMRC will need to strike a difficult balance” - actively pursuing those who can pay their tax debts but are choosing not to, while supporting individuals and businesses struggling with the ongoing impact of the pandemic that “has left more taxpayers in vulnerable circumstances and less able to cope with their debts”.
So what are HMRCs “Time to Pay plans”?
HMRC has always offered taxpayers the ability to approach them and request a payment plan if they cannot pay tax liabilities in full & on time (a time to pay plan).
HMRCs view has always been that these are a concession, not a right & expect certain amounts of information to either agree, or not, to a time to pay request.
The important thing here is that these are designed to help those struggling to pay a tax bill in full and HMRC do frown somewhat on habitual offenders. However, it is certainly still possible to seek a payment plan, even if you have had one before.
Can A Payment Plan help ease my cashflow?
Sometimes life is always about having to look at a bigger picture, and certainly this is key if you are considering approaching HMRC to request a payment plan for tax arrears.
The old phrase “Robbing Peter to pay Paul” is something, that, occurs often, but it is also a sign that there could be a larger problem with a business’s cashflow.
You will need to assess if your business has disposable income to pay towards your tax arrears each month, whilst maintaining other debts. Our advice would be to undertake an assessment firstly, of everything due in and out of your business to see where you stand each month.
We know forecasting income isn’t easy, but you’ll need to be able to see if the company can afford to maintain all its debts, not just HMRC.
Although spreading the cost of a debt will ultimately ease your cashflow there are some things to consider, whilst you are looking at your incomings and outgoings.
Under any Time to pay request there are stipulations from HMRC.
1. Upcoming liabilities must be paid in full and on time.
2. All upcoming submissions must be filed on time.
3. If you fail on points 1 & 2, HMRC will fail the agreement & escalate collection action against you or your company.
4. If you miss a payment under the arrangement, HMRC will fail it & escalate collection action.
As daunting as this seems, a thorough assessment of your financial position should help you determine if a payment plan could help.
Remember also – Business debts can be approached too about payment plans and this may also help you ease your cashflow for a period & enable you to service all the business’s debts.
HMRCS view of payment plans, what do they expect?
The following points are things HMRC may request of you, when approaching them for a time to pay request.
There are also points to note which you may find helpful.
· HMRC will request of you, to support your payment plan request, your personal incomings and outgoings as sole trader.
· It’s important to note that HMRC won’t accept a payment plan if you are offering more than 50% of your disposable income.
· For a Company liability they can request a forecasted cashflow, showing a minimum of 12 months head – Again this is to support your request and it must also show the following;
1. Upcoming liabilities being paid in full.
2. Any required monthly savings towards upcoming liabilities.
3. The monthly time to pay sum being offered and how this reflects against the cashflow.
It is also important to note that whilst you are chasing/speaking with HMRC & trying to get your proposed plan accepted that you must be at least making the level of payment being offered.
This not only shows willing but reduces the debt whilst you are engaging them.
HMRC do not agree to plans which they state are ‘back loaded’ – This means a payment plan which starts off smaller & then the contributions dramatically increase towards the end of the re-payment period being requested.
It is possible to get plans of this type accepted but it very much depends on the narrative/circumstances why you need this and ultimately what you are asking HMRC to consider in the long run.
This is also the same analogy, if you are considering lump sums, paid at certain intervals, on a payment plan.
If you are considering lump sum contributions, ensure you show this & more importantly try to ensure they are as early on as possible within your proposal.
If you need payments to be lower to begin with, try to ensure that these increase as soon as possible within your request, or are accompanied by a lump sum at the start of your plan.
Overall HMRC are being supportive to those showing willing, following the pandemic & they do understand the financial hardship that is occurring.
As agents we have always provided as much information as possible, day one, on a clients behalf. Try to do this when you engage HMRC, the more information you provide the better, but please be careful – you don’t want to say something in your explanations that causes HMRC to question points further.
Prior to COVID HMRC fought back on many cases to restricted time frames for time to pay plans. We have noticed, now following the pandemic, that they are trying to be reasonable with longer term plans but everyone’s case is different and unfortunately you may find that every different person you speak with at HMRC also has a different view.
There are a number of informative articles on our website www.taxdebtshelpandadvice.com which further explains HMRCs collection process and time to pay plans…check out the following links for more information.
https://www.taxdebtshelpandadvice.com/hmrc-re-payment-plan-our-guide/
https://www.taxdebtshelpandadvice.com/repaying-tax-bills/
https://www.taxdebtshelpandadvice.com/hmrc-debt-collection/
https://www.taxdebtshelpandadvice.com/top-10-tips-handling-hmrc/
We're a friendly company who offers tax debt help.If you owe Self-Assessment,PAYE,VAT or Corporation Tax,call 0800 448 0293 for a confidential chat
