Struggling to pay HMRC? How to set up a 'Time to Pay' agreement

Your tax obligations are prioritised debts. This implies that if you don’t pay them, HMRC can take legal action to recover the money you owe. This is true for everyone, whatever their circumstances. So, knowing what to do if you suddenly run into difficulties paying your tax bill is vitally important. This concise guide will explain everything you need to know about how to deal with HMRC when you have bills you’re struggling to pay by setting up a ‘Time to Pay’ agreement.

Understanding ‘Time to Pay’ agreements

If paying your tax bill looks like it’s going to be tough, it is critical that you notify HMRC as soon as possible. If you don’t pay it on time, you’ll have to pay interest and penalties on the outstanding amount. HMRC might also:

• Choose to take the money owed directly from your salary or pension
• They could enlist the help of a debt collection agency (bailiff) to recover the funds
• They may remove your possessions and sell them (if you live in England, Wales, or Northern Ireland)
• If you live in England, Wales or Northern Ireland, they are able to withdraw funds from your bank account or building society themselves
• They could even take you to court, force you to declare bankruptcy, or force you to close your business.

So, your first port of call if you have an outstanding payment or are concerned about missing a future payment, should be to contact the HMRC Time to Pay helpline at 0300 200 3822, where you can set up a ‘Time to Pay’ (TTP) agreement.

A TTP is a contract between a taxpayer and HMRC that allows the taxpayer to stretch their tax due over a certain period of time. This is useful when a taxpayer is experiencing financial difficulties and is unable to pay their tax obligation in full and on time.

However, it is crucial to remember that a TTP does not mean that the taxpayer will not have to pay interest on the outstanding balance – although it may assist taxpayers in lowering the interest charges levied on their accounts.

Do you qualify for a TTP?

To qualify for a TTP, the taxpayer must be able to show that they are unable to pay their tax bill in whole and on time, but are able to make monthly payments towards the remaining amount. If you believe you may be eligible for a TTP, you should contact HMRC as soon as possible.

TTP arrangements are not available to everyone, and HMRC will only agree to them if they believe you will be able to pay the full amount eventually. It’s also not a long-term option because they still charge interest on the outstanding debt. However, if you’re having trouble paying your taxes, a TTP can be a valuable lifeline, providing peace of mind that your business has a chance to survive the debt.

If a taxpayer fails to meet their other tax obligations while they have a TTP in place, HMRC will put it in default.

Setting up a TTP

To negotiate a TTP with HMRC, it is vital to remember the following principles:

• The tax payer MUST offer a fair proposal based on their ability to pay over a certain time period
• HMRC must be convinced that you really cannot afford to pay your tax on time
• If your financial circumstances change in any way, for better or worse, you must notify HMRC immediately
• The payments must be made in the lowest amount of time feasible
• HMRC’s judgement is ‘risk-based,’ thus if there is a higher level of risk, they may request further evidence before making a decision
• Remember, a TTP is conditional on HMRC’s belief that you will eventually be able to fulfil your tax obligation in full

Is a TTP right for you?

The TTP agreement protects you against HMRC’s late payment penalties for failing to pay a company tax bill on time. It is a vital lifeline for business owners who find themselves temporarily unable to pay their tax within the required timeline.

However, interest is still paid on the amount of tax that is still owed. For that reason, a TTP might be exactly what you need to keep your business afloat during difficult times… but it is not a silver bullet that can reduce your tax obligation overall.

If you want any help setting up a TTP, or require any further information on tax matters, please contact JW Hinks on 0121 456 0190. Our friendly team of tax experts can help ensure you understand your obligations, and are not paying more than you need to.