Q. What is the “time to pay” scheme and how does it work?
A. The “time to pay” scheme is a long-standing tax deferral scheme by HMRC that was not widely known prior to 2008, when the government re-launched it as part of a package of recession-busting measures. It allows businesses to delay paying a certain amount of tax for a period of time. Although during 2008 and early 2009 HMRC relaxed the rules and granted extra time for a wide range of businesses to pay tax, now the Revenue has reverted to a more stringent approach and access to “time to pay” has once again become harder. A company seeking more time to pay any kind of tax – including PAYE or income tax for an unincorporated business – must call HMRC to outline a specific reason why the tax cannot be paid and a schedule for paying it. For example, if a customer is taking some time to pay an invoice, a company can ask that the deadline to pay the tax on that revenue be pushed back until the invoice is paid. The re-launch of the scheme was designed to help companies during the downturn, enabling the Revenue to show some discretion towards otherwise successful businesses.
Q. Who is included and how does one qualify?
A.HMRC decides on a case-by-case basis which businesses are eligible to have their tax payments delayed. One of the main factors involved in the decision is whether the business is viable in the long term – HMRC is not keen to grant time to businesses that might go bust having not paid their tax. It might therefore be harder for new companies with cash flow problems to be included in the scheme because it is necessary to provide proof of one’s ability to handle cash flows in the longer-term, showing that this inability to pay tax is just a one-off. Such proof can take many forms, including balance sheets, bank statements, previous tax returns (which the HMRC will already have on file) or a history of invoices (if, for example, a regular customer always takes three months to pay, this must be shown with documentation). To get permission, documentation, good faith and reliability are important. As Baker Tilly’s Vincent Wood says: “If you’re a company that’s never been late with anything and you ask for an extra few months, the Revenue will take it that you probably are in difficulties rather than just trying it on or looking to use them as a bank.”
Q. Are there any limits on when and how much tax one can delay?
A. The only official limit on delaying tax payments is for companies owing over £1m, who need to provide an independent business review to prove their need for more time. In terms of timing, Anita Monteith at the Institute of Chartered Accounts says: “Contact the revenue before the payment is late. Don’t leave it until you’ve missed the deadline.” And when permission has been granted, Wood advises: “Once you’ve made the arrangement you really have to stick to it because, if not, next time they just won’t believe you.” Businesses that have missed tax payments in the past might therefore find it difficult to push back their tax deadlines. For viable companies permission can be granted instantly.