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A Time to Pay Arrangement – the key to avoiding a formal insolvency?

In recent weeks I have received an increasing number of enquiries from business owners who find themselves in a quandary. They have managed to flex and adapt their business – reducing overheads where possible – as they prepare for challenging trading conditions, but they do not foresee enough improvement in cashflow to be able to pay the arrears that have accrued with HMRC. The question often asked is how can we avoid insolvency in these circumstances?

The answer is to get the help of a professional to engage actively with HMRC at an early stage to discuss the prospect of restructuring the repayments over a longer period of time. This is known as a Time to Pay arrangement (“TTP”). I often find that using a specialist restructuring firm such as BLB Advisory gives a clear signal to HMRC that the business is at a financial crossroads and a formal insolvency process such as liquidation may be imminent if a TTP cannot be agreed.

The issue may not be immediate but may manifest itself more critically in March 2021 when any VAT deferred between April & July 2020 becomes due, which also coincides with the commencement of repayments for any Bounce Back Loan (“BBL”).

Any TTP that we negotiate on your behalf with HMRC can include any taxes that were deferred. It is important for any request for a TTP to provide a clear explanation of how the situation has arisen and that the proposed repayments are affordable. For HMRC to consider a TTP, they will want to see some or all of the following:

  • the reasons why the business can’t pay the liabilities;
  • a summary of the other options that have been considered;
  • a cash flow forecast demonstrating that the proposed repayments are affordable;
  • that future HMRC payments will be paid as and when they fall due (i.e. the problem won’t get any worse);
  • that it is a viable business;
  • the TTP proposal demonstrates that the correct balance has been found between affordability and repaying the HMRC arrears in the shortest time period;
  • the key stakeholders of the business are supportive of the TTP; and
  • full disclosure of the liabilities due to HMRC and that all statutory returns are up to date.

In our experience HMRC will also take into consideration the business’s previous compliance history, whether any previous TTPs have been agreed and maintained, and whether any significant dividends have been declared to the business owners.

What we don’t know at the moment is whether the re-introduction of HMRC having preferential status in formal insolvencies in respect of certain taxes (to take effect from 1 December 2020) will change the criteria used when considering TTP proposals.

Please get in touch if we can help you to consider your options and write a detailed proposal to HMRC on your behalf, whilst at the same time helping you to review the financial sustainability of your business.