Published on 7 January 2011 by Tony Groom

Recently uploaded guidelines for HM Revenue and Customs case officers dealing with requests from businesses in difficulty for Time to Pay for overdue VAT, PAYE and tax, reveal the detail of what questions will be asked before the request for a Time to Pay arrangement (TTP) can be considered.

Applicants must be able to show that they have tried to raise the money they owe by other means beforehand.  Individuals, which includes sole traders and the self employed, may be asked to show that they have approached their bank or asked friends or family for a loan or that they cannot pay the debt via a credit card.

However, the advice to case officers also states that for individuals “it is unacceptable for us to insist that a customer has made every effort to secure a loan before agreeing TTP” because it would contravene Office of Fair Trading Debt Collection Guidelines.

Both individuals and larger businesses may also be asked whether they have any assets that can be easily converted into cash or any savings that they could use to settle the debt, even if early withdrawal might incur a payment penalty. This also applies to endowment or life insurance policies, although the HMRC cannot insist that these are cashed to pay a debt.

The HMRC distinguishes between debts below £100,000 and debts above that amount and for larger businesses HMRC would want to see evidence, usually a letter from the bank, that the company has approached their bank and discussed borrowing facilities beforehand as well as exploring options for raising money from: shareholders, Directors, book debt factoring and invoice discounting, stock finance, sale and leaseback of assets or venture capital providers.

It would make sense, therefore, to have a thorough business review and the support of a rescue adviser or insolvency practitioner to assess the business viability and explore all these options and to document them before approaching HMRC.

The case officer will want to know more than this, including information they will have available from the Revenue’s own records. This will include whether the applicant has a previous history of paying on time, whether they have had a previous TTP and whether they have ever been late with payments. Previous difficulties will weigh heavily in the final decision.

The situation will be more serious and the ability to agree a TTP more difficult if there are any outstanding Revenue returns and the applicant can give no good reason why they are late. The case officer must then ask that the missing returns are submitted within a month and the applicant must make the largest payments possible in the meantime. If neither of these is done the Revenue are required by policy to start recovery proceedings.

Finally, the case officer must assess whether the business is viable or not. Again providing evidence for this is easier with the help of a review from a rescue adviser or insolvency practitioner.

The HMRC guidelines advise case officers that they should consider how serious the problem is and how long it is likely to last, what the applicant is doing to correct the problem and judge if the proposed TTP arrangement is realistic. If the business thinks it can trade through the difficulties by increasing sales the case officer must establish if they have signed agreements or are just bidding for new contracts and what steps, if any they are taking to reduce costs and over how long.

It should also be remembered that even if a TTP arrangement is agreed it is subject to a number of conditions, not just repaying the arrears on time but also paying all future liabilities on time. Being realistic about all the company’s income and expenditure, liabilities and assets often needs input from an advisor to ensure the arrangement is achievable to avoid the risk of it being terminated due to default.