HMRC has recently launched an online “time to pay” facility, aiming to streamline and automate the process for certain situations.
Published on 23rd June 2023, this development addresses the challenge of cashflow, particularly in relation to VAT liabilities when businesses may face difficulties in making payments to HMRC.
While HMRC has implemented a new penalties system, it remains advisable for businesses to establish a time to pay arrangement with HMRC before penalties are imposed.
Now, eligible businesses can conveniently set up a VAT payment plan online.
Background As a VAT-registered business, one acts as an unpaid tax collector on behalf of HMRC, charging VAT to customers and remitting it to the tax authority.
Since most businesses operate on a quarterly VAT return basis, it is common for businesses to owe VAT to HMRC before collecting the full VAT amount from customers, especially when invoicing near the end of a VAT quarter.
Therefore, besides being tax collectors, businesses often find themselves acting as lenders to HMRC until they can reclaim their input tax from the tax authority.
Current process Under the current process, taxpayers contact the business payment support service, provide security information, and then communicate the amount owed, the reason for the inability to make full payment on the due date, and propose a fair and reasonable payment plan. HMRC may ask additional questions and typically propose a counteroffer that is often less favorable.
Based on experience, HMRC often states that they cannot extend the payment period beyond 12 months (although it is possible) and frequently attempts to limit the payment terms to three months. Negotiations often involve requesting nine months, being offered three months, and ultimately agreeing on six months. The outcome can vary depending on the individual HMRC representative handling the case.
Interestingly, even for two associated companies owing similar amounts and contacting HMRC on the same day, one may secure an 18-month plan while the other is granted only six months. HMRC’s stance of “not allowing anything over 12 months” may be inconsistent.
Online process The online process has specific conditions that must be met to qualify for application:
- The latest VAT return must have been filed.
- The amount owed to HMRC should not exceed £20,000.
- Application must be made within 28 days of the deadline.
- The business should not have any other active time to pay agreements or outstanding debts with HMRC.
- The maximum repayment term is six months.
These conditions are designed to minimize risks for HMRC and prevent large corporations from taking advantage of the time to pay option indiscriminately. Other than the £20,000 limit, the remaining conditions are logical and mirror the requirements for seeking a time to pay agreement for amounts exceeding £20,000.
Assuming the conditions are met, the taxpayer must log in through the government gateway using the specific link provided. There is no menu option for this within the gateway itself. If the login is successful, the taxpayer proceeds to a series of screens/questions, answering them in order and selecting the desired length of the payment plan, among other details.
The Covid years Taxpayers may recall that during the Covid lockdown period, HMRC allowed for the deferral of VAT returns for one quarter (March-June 2020), effectively delaying the payment of VAT until March 2021. Afterward, taxpayers had the option to enter into a time to pay agreement. It’s important to note that this one-time scheme is unrelated to the new online time to pay process.
Summary This addition to HMRC’s digital communication with taxpayers brings another process online. The online process appears to be efficient and simplifies the experience, particularly for those who may feel uncomfortable speaking directly with HMRC.
From an agent’s perspective, the process can also streamline and expedite the procedure. However, there is a potential downside as taxpayers might view the online process as a means to exclude their agent, potentially to save costs.
Nevertheless, it is crucial to recognize that a time to pay agreement is just one tool for addressing cashflow problems. Cashflow issues often indicate underlying problems within a business, although not always. Since VAT does not belong to the business but rather comes from the customer’s pocket, an inability to make VAT payments often necessitates a deeper understanding of the underlying issues rather than simply relying on a quick solution like seeking a time to pay agreement.
