HMRC: Time to pay arrangements if you have used a defeated tax scheme

Have you paid your tax bill on time? If you or your business is late trying to pay a tax bill then you inevitably have to negotiate with HMRC to rectify the issue. You may have even received a letter that threatens legal action to be taken if you do not pay soon or immediately.

If your business finds itself in temporary financial difficulty and you’re unable to pay your tax bill immediately, then you need to ensure that you can pay the bill by instalments and will not be penalised for doing so by coming to a settlement agreement.

Read on to find out how you can negotiate a HMRC time to pay arrangement and ease the pressure on your business.

What is a time to pay arrangement (TTP)?

Each TTP arrangement is different, depending on your financial circumstances and the amount of the tax bill in question.

HMRC will look into your exact financial situation based on the information you provide and make a reasonable assessment on whether your business can afford to pay immediately, or whether a TTP arrangement would be sensible.

By setting up a TTP arrangement, your business will avoid any late payment penalties normally imposed by the HMRC, but you will have to stick to the designated payment schedule or time limit in order to avoid them in future.

How much time will HMRC give me to pay?

Normally this will be over 12-months to allow you to pay off the outstanding tax bill gradually, rather than all at once.

However, each TTP arrangement is different and in the case of failed disguised remuneration schemes, HMRC said in July 2018 that they will normally allow users to spread the tax payments over 5 years if their taxable income is less than £50,000 pa and they give up or concede all tax avoidance arrangements.

Are you eligible to set up a TTP arrangement?

The successful negotiation of a TTP arrangement is often based on the past history of your business and whether you can be trusted to stick to the payment schedule imposed. You will be assessed on the long-term success of your business and if you have previously conducted your tax affairs well in the past.

HMRC will understand that most companies can have financial issues even if they are doing very well, so it is best to as transparent as possible about your accounts and provide as much relevant information as possible – this will increase the likelihood of your TTP arrangement being accepted.

What happens if my preferred TTP arrangement is denied?

Your TTP arrangement might be denied or rejected if HMRC feels you are not in a position to pay back the late tax bill, you have shown a history of late payments or HMRC believes that you can pay larger instalments over a shorter period.

At this stage, you will be notified of enforcement action that will occur if you do not pay the tax bill immediately or you fail to keep up with the instalments required by HMRC.

You will be able to make a complaint regarding the way you were treated over a decision by HMRC, but you cannot lodge an appeal to the tax tribunal over TTP arrangements.

You could, however, apply to the Court in the face of enforcement action by HMRC involving, say, a charging order or a bankruptcy order and ask the Court to make an instalment order.

The Court of Appeal has recently held in Diana Loson [2018], that in the face of enforcement action by a creditor the Court had to be presented with a realistic repayment schedule supported by evidence that the creditor would receive the amount owed plus interest within a reasonable period of time, and that the interests of the creditor trump those of the debtor.

A reasonable period will depend on the facts of the case. A recent report in The Times referred to a taxpayer who owed £195,000 to HMRC for a failed tax scheme and who claimed that HMRC have allowed her to pay in instalments of £500 a month until 2049 when she will be 85.

This seems to be an extraordinarily sympathetic approach by HMRC to a particular taxpayer, but if true, there seems to be no reason why other taxpayers in a similar situation should be denied this treatment.

For any further information on TTP arrangements or to speak to a leading tax barrister, get in touch with Patrick Cannon today.

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