A Time to Pay Arrangement with HMRC refers to a debt payment plan for your due taxes. Corporations that have defaulted on their payments to settle their Corporation Tax, VAT, and PAYE can request HMRC for an extra duration to pay. They usually decide you can pay it back over 6-12 months.   

What is a Time to Pay Agreement?   

If your company can’t pay VAT, you should reach HMRC to ask for a ‘Time to Pay Arrangement (TTP). HMRC provides a ‘Business Payment Support Service’ that businesses can use if they struggle to make a payment.   

SMEs are undergoing cash flow problems, but with good observation, a record should be able to make a Time to Pay arrangement with HMRC to pay their VAT bill over a longer term and in installments.      

What happens when businesses are unable to pay VAT? 

Being incapable or late to pay your VAT is a serious issue, and HMRC will understandably want to learn why this situation has occurred. HMRC will want to know whether the business can genuinely pay its VAT bill or if the company executives are unwilling to make the payment.   

It is common for directors to have invested their working capital in expanding the business rather than paying their tax liabilities. In this case, reaching a Time to Pay arrangement will take a lot of work.   

What are the Standards for an HMRC Time to Pay Arrangement for VAT?   

When consulting your circumstances with HMRC, the Business Payments Department will want to know the following:   

• Why is the company unable to pay its VAT in full and on time   
• Whether you filed your VAT return on time   
• What have you accomplished to try and increase the money to pay the debt   
• How much can you pay immediately   
• How much longer do you believe you will need to pay the rest   

Depending on why the company can’t pay, your payment history, and how long you need to pay the bill, HMRC will assess your ability to make future payments and decide whether to agree to a VAT payment plan.   

How to qualify for Time to Pay Arrangement? 

HMRC will evaluate many criteria when supporting a Time to Pay Arrangement. These include:   

• Compliance with tax rules and regulations 

Actions like filing taxes belatedly and being fined point towards the fact that your company needs to be more reliable and is unlikely to meet the terms of your agreement.   

• Your line of business/industry   

Some businesses and industries are at higher risk due to competitiveness, experience, and cash flow issues.   

• Experience Time to Pay Arrangements   

It may impact your application but consider yourself if you have had time to pay for the arrangement.   

Deciding how much you can afford to pay in Installments   

You must be realistic about how much of your VAT bill you will be able to reciprocate each month. If you cannot keep to the arrangement, you could cancel the payment plan, and penalties could apply. Negotiating another VAT payment plan will be easier if you default on one. You must also offer to repay an amount HMRC deems reasonable.   

If your company can’t pay corporation tax that is due from the prior year, this also includes time-to-pay arrangement. This situation is more expected for contractors/consultants in industries such as IT/Banking.