Can’t afford to pay Construction Industry Scheme tax

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Updated: 23rd July 2021

If you’re finding it difficult to keep up with Construction Industry Scheme (CIS) payments, it’s important to take action as soon as possible. Any delay can quickly lead to a spiral of debt for your business, and potential insolvency.

HMRC operates a stringent tax regime and applies hefty penalties for late CIS returns. These will only add to the company’s financial distress, but along with late payments, also makes the tax body aware that the business is experiencing financial issues.

What is the Construction Industry Scheme?

The Construction Industry Scheme is a tax system that involves businesses in the industry collecting tax on behalf of HMRC. It can be a complex system and depending on how you operate, you might be a contractor and a sub-contractor simultaneously, or only a contractor/ sub-contractor.

For this reason it can be difficult to keep up with the required paperwork, CIS returns, and payments. Accuracy is vital, though, as HMRC will scrutinise your returns and payments to make sure you’re collecting and paying over the correct amounts.

If you’re a contractor you need to record the gross amount (excluding VAT) of your sub-contractors’ invoiced payments, and any deductions you’ve made. Sub-contractors’ invoiced costs of materials also need to be recorded.

So what should you do if you can’t afford to pay your Construction Industry Scheme tax, and what are the potential outcomes? The first step is to take professional insolvency advice, which ensures you’re able to take the correct action depending on your business’ situation.

Licensed insolvency help when you can’t pay CIS tax

A licensed insolvency practitioner can assess your company’s financial position and its risk of entering insolvency. It’s advisable to seek independent advice well before debts become unmanageable, and Real Business Rescue can help.

The principal aim of our licensed IPs is company rescue – we’ll clearly present your options and explain the benefits of each. Depending on the level of debt involved this may simply involve negotiating on your behalf with HMRC, or perhaps seeking alternative finance to boost your cash flow.

Keeping cash flow healthy is a key element of avoiding irreversible financial decline. We can provide trustworthy advice on cash forecasting and putting contingency plans in place, as well as the importance of tracking cash as it comes into and leaves your business.

So what options might you have if you can’t pay your CIS tax?

HMRC Time to Pay (TTP) arrangement

The Time to Pay scheme run by HMRC offers additional time to pay tax arrears, and can include Construction Industry Scheme payments. Again, acting quickly in contacting HMRC is paramount as it shows you’re proactively addressing your company’s poor financial state.

CIS is a scheme whereby you collect tax on behalf of the Treasury, so if it’s withheld for any reason, HMRC take swift action to recover the arrears. The tax body is known to quickly close down companies that are insolvent, but contacting them in advance of a missed payment can significantly help your case.

A TTP arrangement typically offers 3-6 months extra time to pay, but it may be possible to secure an additional 12 months. We have extensive experience of dealing with HMRC and understand how their systems work - we can negotiate with HMRC on your behalf, presenting a strong business case to back up your application.

Alternative funding

If the company’s only debt is CIS, a Time to Pay arrangement may be all you need to survive the issue. When multiple debts exist, however, or the company is in a general financial decline, alternative funding can offer vital support for cash flow over a longer-term.

Invoice finance is one form of alternative funding that provides regular cash inputs each month. The lender releases a proportion of each invoice in advance of your customers’ payment, allowing you to operate and plan ahead with greater confidence.

Company Voluntary Arrangement (CVA)

HMRC may be willing to sanction a Company Voluntary Arrangement that includes CIS arrears. The business must be deemed viable by a licensed insolvency practitioner to be eligible for a CVA, which is a formal instalment plan incorporating multiple debts.

If your business is eligible, a Company Voluntary Arrangement would offer the opportunity to steer your company back to profitability, typically over a period of five years.

For more information and unbiased advice if you can’t afford to pay Construction Industry Scheme tax, please get in touch with our partner-led team. Real Business Rescue offers free, same-day consultations and operates an extensive network of offices around the country.

Keith Tully

Partner

0800 644 6080
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