COVID-19 and UK Tax: Negotiating 'Time to Pay' Arrangements with HMRC

The UK Government is implementing a number of unprecedented initiatives to help the economy, businesses and individuals weather the coronavirus pandemic. This includes various tax-based measures aimed at helping businesses experiencing cash flow issues as a result of social distancing (where customers are unable to make purchases in the normal way and employees are unable to work).

Although some of these measures will apply automatically (for example, the deferral of VAT payments for three months from 20 March until 30 June 2020), those businesses in financial distress will largely need to take the initiative with HMRC. Demonstrating this fact, HMRC have set up a dedicated helpline with 2,000 call handlers to assist those concerned about not being able to meet their tax obligations. In particular, any businesses affected by the coronavirus pandemic may be able to benefit from a TTP arrangement, which is a formal agreement with HMRC that allows a taxpayer to spread their tax payment obligations over a longer period.

TTP arrangements are not new - HMRC have allowed companies and individuals to defer tax payments through these arrangements since 2008 (they were notably used in response to the financial crisis and flooding) and they can potentially apply to any type of UK tax or duty. However, in line with the UK government's pledge to support businesses through the pandemic, the usually strict criteria for TTP arrangements can be expected to be relaxed somewhat (although there is no formal guidance on this point). For example, under normal circumstances, HMRC would be unlikely to agree to instalments over more than 12 months or payment schedules proposing heavily back-loaded payments and would be generally unwilling to offer a TTP arrangement to a taxpayer that has had one previously.

The overriding purpose of TTP arrangements is to maximise the possibility for HMRC to collect money owed by reducing the threat of insolvency but they offer clear advantages to taxpayer including:

• increased certainty over cash flow;
  
  
• HMRC suspending further action to enforce the debt; and
  
  
• avoiding late payment penalties and default surcharges.

Despite HMRC potentially adopting a more flexible approach amid the current crisis, those seeking to reach an agreement with HMRC over their tax affairs should ensure they are fully prepared in order to obtain the best possible terms. Those businesses with existing TTP arrangements would also be well-advised to review their instalment payments in light of updated forecasts to ensure they remain affordable.

Negotiating with HMRC

As a general rule, taxpayers are advised to communicate with HMRC as early as possible, particularly if a due date is impending. There is likely to be a current influx of companies seeking a TTP arrangement and a telephone queue is to be expected. Nevertheless, HMRC have indicated a readiness to assist and it is worth waiting to speak to a call handler.

Before contacting HMRC to discuss tax liability payments, taxpayers should organise their records and prepare thoroughly for negotiations. In particular, we suggest:

• Ensuring you have taxpayer and/or VAT reference numbers to hand, and have accurately calculated the company's total tax liability and the amounts to be deferred.
  
  
• Identifying which tax liabilities can be met, and which debts are critical to defer. This may require consideration of the accruing late payment interest or the likelihood of enforcement action.
  
  
• Preparing realistic cash flow forecasts, details of income and expenditure, a statement of assets and liabilities and other financial statements. HMRC will ask the company to evidence that the financial distress is short-term, to demonstrate a future improvement in cash flow and to assess its maximum ability to pay in each month. 
  
  
• Recording any actions taken to seek support elsewhere, including engaging with lenders and applying for the UK government's temporary coronavirus financing schemes. HMRC will look for reassurance that the company is taking as many steps as possible to guarantee that a repayment plan is adhered to.

Other potential steps

Taxpayers should also consider whether they are entitled to any tax reliefs that can be offset against their liabilities or which may result in an immediate repayment. These may include:

• accelerating claims for future loss relief or capital allowances; and
  
  
• reviewing whether any statutory reliefs are applicable to the business, such as R&D relief or double tax relief.

If you would like more information on any of the above or are experiencing any tax-related issues as a result of the coronavirus pandemic, please do contact a member of our specialist Tax Disputes and Investigations team.

Last reviewed: 26 March 2020

See also our Coronavirus (COVID-19) page.