25th November 2021
Time to Pay arrangements (TTPs) are formal instalment plans to pay HMRC tax debts over an extended period. They’re a vital lifeline for many businesses in temporary financial difficulty, offering several months or more to catch up with tax liabilities.
When the coronavirus pandemic created huge financial problems for businesses, HMRC broadened access to the scheme, helping to prevent business closures and create a supportive base for those legitimately trying to pay.
But what happens when you breach a Time to Pay due to COVID-19? Could you renegotiate, and are there any other options that might save your business from closure?
Open communication with HMRC is vital to prevent them applying for a winding up petition in these circumstances. If they believe you’re not committed to repaying the Time to Pay arrangement they may take swift legal action.
You also need to seek professional insolvency advice quickly to establish the options open to you, and potentially make a proposal to change the TTP repayments if that’s appropriate in your company’s financial situation.
If your business can no longer afford to repay a Time to Pay arrangement regardless of a reduction, or HMRC refuse your proposal, there are routes and other insolvency options you can explore.
The government-backed COVID-19 loans may provide the emergency funding your business needs, but other alternatives could also offer long-term flexibility. If your business operates on credit and you run a strong sales ledger, you may be eligible for invoice finance, for example. This provides you with a regular cash injection based on a proportion of each invoice issued.
Other alternative funding possibilities include merchant cash advances, which are appropriate for some businesses in the retail sector. This type of funding is based on your card sales, so again, offers flexibility to trade with more confidence.
A further option if you own assets of value that aren’t strictly necessary to operate your business could be asset-based finance. It offers a cash lump sum on the sale of these assets, which could be used to repay HMRC.
Company Voluntary Arrangement (CVA)
Given that a TTP has already failed, you may or may not be eligible for a Company Voluntary Arrangement. If you are, the arrangement consolidates your debts so that you only make one payment to creditors each month. If HMRC has already rejected attempts to renegotiate your Time to Pay plan, however, they may also be unwilling to sanction a CVA.
If a licensed insolvency practitioner assesses your business and can formulate a plan that protects creditor interests and provides a better return for them than liquidation, company administration may also be a viable route.
Entering company administration can lead to various outcomes, including selling your underlying business assets, entering a CVA, or continuing to trade out of difficulty.
Creditors’ Voluntary Liquidation (CVL)
If liquidation seems to be the only option, entering liquidation voluntarily is preferable to waiting for HMRC to petition for your winding up. You have more control over a CVL, and potentially face less scrutiny than with a compulsory liquidation.
There’s also the possibility of director redundancy to consider – a payout which could cover the professional fees for this process, pay off some of the company’s debts, or simply prevent your personal financial decline given that your company has to close.
If you’ve breached your Time to Pay arrangement because of coronavirus, our experts at Real Business Rescue can help. We’re business turnaround specialists and have extensive experience of dealing with HMRC. Please call one of our partner-led team to arrange a free same-day consultation – we have a wide network of offices throughout the UK.