With HMRC being more watchful over tax compliance, it’s become more crucial that you pay your tax bills on time, whether as an individual or a business. Otherwise, you would be at risk of possibly hefty fines. This article focuses on corporation tax, especially what you can do when you are unable to pay your obligation on time or have already fallen into tax arrears in which you have reached way past the deadline—through a form of corporation tax payment plan.
Whilst HMRC is less strict when it comes to corporation tax arrears compared to VAT’s, penalties and late payment interests come with late payment of corporation tax, too, just as the latter. Many businesses have fallen into the trap of settling their corporation tax obligations at the last minute to find out later that their tax bill have hiked unexpectedly.
There may be many other reasons for missing out on the deadline or being unable to pay corporation tax on time. During the pandemic, which instigated a lot of closedowns and a decrease of profits, a lot of businesses were short of revenue to even pay for taxes.
To alleviate their financial pressures during this despondent time, the UK government came up with the time-to-pay (TTP) arrangement option, which is granted for businesses that anticipate their turnover would not make it to paying taxes.
For acceptable reasons such as this, amongst many others, HMRC decides to grant eligible businesses a leeway of time and decrease of the penalty imposed, which would otherwise be higher if they didn’t declare their tax situation as early as possible.
What Do You Do When You Think You Can’t Pay Corporation Tax on Time?
Insolvency, or the state in which you may not be able to pay taxes, can happen at unforeseen times due to unexpected circumstances. In the heat of the pandemic, HMRC is quick to grant TTP plans to businesses as their way of showing leniency for the unexpected financial blows these businesses face.
However, if the reasons are other than that, HMRC does not just easily accept any requests for TTP arrangement. They may be more lenient to businesses with reasons such as a major customer being insolvent or the owner succumbing to a sudden illness. HMRC may also highly consider you for this payment plan when you belong to a specific niche of business.
Having negative tax records, such that you were an unreliable taxpayer in the past years, would make your TTP request most likely to be declined. HMRC looks closely at how well you have complied with your tax responsibilities in the past before they decide to accept your request.
Whatever reasons you anticipate you are unable to submit your corporation tax return and pay your corporation tax bills, the best you can do is inform HMRC straight away. HMRC has strong debt recovery actions in place, and falling into tax arrears already puts you at risk for their closer scrutiny, in which case you will most likely receive a warning or reminder letter.
Once you receive a reminder letter, it might be too late for you to request TTP arrangement. It’s best to report to HMRC about your tax situation right away than wait for their warning letter. The sooner you notify, the more likely your TTP request will be granted.
How Does Time-to-Pay Arrangement Work?
Time-to-pay arrangement allows you to get your taxes up to date even in times of your business’ financial hardship or insolvency, letting you pay your tax debts through monthly instalments of the agreed amount. Usually, TTP arrangement lasts for 6 to 12 months. For the 2022/23 tax year, you will be imposed an annual interest rate of 2.6 per cent.
However, for heavier financial reasons and with a positive tax compliance history, you can request a longer instalment plan. Just take note that HMRC usually wants taxpayers to pay their tax debts in a short span of time as much as possible and so, they prefer you propose a shorter instalment period. In the end, HMRC decides the duration of your instalment period based on your capacity to pay.
Requirements for TTP Arrangement
Before you inform HMRC about your tax situation, make sure you have your requirements ready to smoothen the process of your request. Here is the needed information your company will need to compile:
- Registration number
- Telephone number
- Unique tax reference number (UTR)
- VAT registration number
- Current or future repayments from HMRC
You will also have to prepare beforehand the details of your payment that you would like to discuss, such as the following:
- Explanation of why you are unable to pay corporation tax
- How you can get money to pay for your tax debt
- How you would strive to repay your debt
Process for TTP Arrangement
Upon TTP request, HMRC will more likely to consider your case when you speak out your disagreements with their proposal and even inform them that you are also working with tax experts alongside as these show that you are serious and proactive about making the arrangement.
Once you have provided them with the needed information, the next steps depend on whether or not your request is accepted. If your request is accepted, HMRC will give you a written confirmation later on. If they give you just a verbal confirmation, then make sure to request them a written document for future reference.
On the other hand, it could be worse for your business if your request is rejected. When you are shown to have bad tax compliance records and generally don’t fit with their eligibility criteria, then you will have to face serious consequences despite your financial hardship. HMRC’s strong debt recovery actions, such as court filing and forced liquidation may subject your business to bankruptcy.
Why You Need the Help of Tax Experts
Whilst HMRC tries as much as possible to prevent businesses from bankruptcy, facing insolvency or tax arrears and being denied the TTP arrangement can be very dangerous for your business. One of the most proactive actions you can take is to seek help from tax experts, especially from firms that have served in the industry for years. Contact Legend Financial today!