Updated: 8th February 2021
Coronavirus has made its presence felt in many aspects of our lives, and if you’re a self-employed contractor or run a contractor limited company, you may have found your contracts have been cancelled by other businesses struggling to survive.
Work has dried up for many small limited companies and contractors in the UK, and income from the future contracts relied on to pay tax and other essential bills may no longer be available.
If you haven’t saved money towards your tax bill, or have had to use it to keep the business going in these extremely challenging times, you need to let HMRC know as soon as possible. They may be able to offer you more time to pay.
HMRC operate a Time to Pay (TTP) scheme for eligible businesses in tax debt. This could allow you an extended period of up to 12 months to bring your tax liabilities back in order, and stabilise your business and personal financial situation.
One of the key criteria for acceptance onto the scheme is being viable for the future, so if HMRC believe your financial difficulties aren’t temporary, they may refuse a Time to Pay arrangement simply on these grounds.
It’s vital to contact them as soon as you know you can’t afford your tax bill. The fact that your contract work has dried up is the principal reason behind your non-payment, but you’ll need to provide documentary evidence of this to support an application for time to pay.
If you get in touch with HMRC quickly, you may be able to avoid penalties for late payment. Interest will still accrue on your debt, however, even if a TTP is in place. You’ll also need to be able to pay any current tax liabilities as they fall due, which is an important consideration.
Time to Pay arrangements typically last 3-6 months, but in some instances it’s possible to negotiate up to 12 months’ extra time. It’s important to know that if you miss a payment on this new instalment plan, HMRC may close it down and use other debt enforcement measures, such as bailiffs.
HMRC also run an online service for eligible contractors and businesses impacted by coronavirus, which can’t afford the payment due on January 31st 2021. This option is currently available until the end of March 2021.
If you aren’t eligible for extra time to pay your tax bill, you may be able to secure additional finance to pay the tax and keep the business afloat until you find more contract work. The Bounce Back Loan Scheme (BBLS) has been extended until 31st March 2021, and offers a fixed 2.5% interest rate.
You won’t need to make any capital or interest payments for 12 months from the start date, and Bounce Back Loans are guaranteed 100% by the government to make it easier for struggling businesses to access this emergency finance.
Formal insolvency procedures
A range of official insolvency procedures also exist in the UK. These include, but are not limited to:
Your obligations change if your business enters insolvency, and you must prioritise your creditors’ interests. It’s essential to seek guidance from a licensed insolvency practitioner (IP) when you can’t afford your tax bill, or are unable to pay your day-to-day bills as they fall due.
An IP will determine whether the business is insolvent, and can present your best options. Real Business Rescue are leading business rescue and recovery specialists in the UK, and our partner-led team can provide the advice you need.
We will also negotiate with HMRC on your behalf where necessary, and ensure you present compelling supportive evidence for a Time to Pay arrangement if you’re eligible. Please contact one of the team for a free same-day consultation – we run a broad network of offices around the country.
28th July 2021
The number of UK companies in positions of ‘significant financial distress’ were up 24 per cent at the end of the June 2021, as compared to the same point of last year.Read More
22nd July 2021
The Confederation of British Industry (CBI) has called for an “immediate rethink on self-isolation rules” to help businesses manage their workforces as the economy reopens and recovers.Read More