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Coronavirus: what if my small business can’t pay its tax bill?

There may be no need to panic if your small business is affected by coronavirus (Covid-19) and is unable to pay its tax bills…

How is Covid-19 impacting businesses?

As Covid-19 continues to overwhelm countries throughout the world, businesses of all types and sizes will be affected in numerous ways. 

Some businesses may be forced to cease trading altogether, because their sales will grind to a juddering halt or fall off too much. Many employees won’t be able to come into work, either because they’re sick, need to self-isolate or look after loved ones. Some won’t be able to work from home, simply because of the nature of the work they do. 

Many businesses will attempt to “keep calm and carry on” by allowing their staff to temporarily work from home, until (hopefully) things soon start to improve. But having less or indeed no revenue coming in will give many small-business owners and managers sleepless nights.

Staff and suppliers will still need to be paid, and failure to do so can have a disastrous domino effect on cash flows throughout supply chains. Many cash-strapped businesses will also have tax bills to pay in the coming months, too. So, if that includes you – what can you do?

Deferring Income Tax and VAT payments

The government has announced that it will defer payments of Income Tax and VAT in order to ease the pressure on self-employed workers and businesses. 

  • The next quarter of VAT through to the end of June has been deferred (those payments can now be paid at the end of the financial year). 
  • If you’re self-employed, Income Tax payments due in July 2020 under the Self-Assessment system will be deferred to January 2021.

HMRC Time To Pay service

According to government website GOV.UK: “All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support through HMRC’s Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.”

  • It adds: “If you are concerned about being able to pay your tax due to COVID-19, call HMRC’s dedicated helpline on 0800 0159 559.” 
  • It operates from Monday to Friday 8am to 8pm, and Saturday 8am to 4pm (charges apply). 
  • Some “2,000 experienced call handlers” are available to support businesses and individuals who believe they may struggle to pay their tax bills.

According to HMRC:

  • “For those who are unable to pay due to coronavirus, HMRC will discuss your specific circumstances to explore:
    • agreeing an instalment arrangement
    • suspending debt-collection proceedings
    • cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately.”

Before contacting HMRC, have to hand your tax reference number (eg your 10-digit Unique Taxpayer Reference and/or VAT reference number) and know the amount of tax that you’re struggling to pay. You may be asked how much you can pay immediately and how long you’ll need to pay the rest.

How does Time To Pay work?

For some years, companies, businesses and the self-employed have been able to seek a Time To Pay (TTP) arrangement. They “allow HMRC to collect tax in a cost effective way, as “viable customers who cannot pay on the due date [can] make payment(s) over a period that they can afford.” 

TTP arrangements are a kind of debt-repayment plan, and “viable customers” are businesses and self-employed people experiencing short-term cash flow problems, but who are otherwise profit-making. 

TTP arrangements are tailored to the customer’s ability to pay and typically last for two or three months, but can be longer (although TTP arrangements lasting more than 12 months are rare). As explained by HMRC on gov.uk: “Most TTP arrangements involve [making] regular monthly payments, but in exceptional cases they may involve a short period of deferral.”

According to HMRC: “Objective criteria are applied in each case” and “they’re entered into on a case-by-case basis.” HMRC must be satisfied that a business genuinely cannot pay its tax liability on the due date. The business must also make the best payment proposal that it can make. Payments must increase if the business’s ability to pay improves. 

And HMRC must be convinced that the business can pay the TTP, as well as other tax due during the period. Sums owed will vary, of course, and according to HMRC: “As a rule, the larger the liability, the greater the risk and the greater the need for more information” from the business. HMRC will never reduce the amount of tax due as part of a TTP arrangement.

Need to know: Time To Pay arrangements

  • Enforcement action

    HMRC will take “enforcement action” to get money it’s owed if you or your business does not pay its tax bills. You could also be subject to fines and interest payments.     

  • Early notification

    If you’re experiencing problems paying your tax or VAT bill – whether because of Covid-19 or for other reasons – contact HMRC as early as possible. Don’t leave HMRC to contact you because your payment is late.

  • Tax payment avoidance

    HMRC will take a very dim view of any individual or business that’s simply trying to deliberately avoid paying its tax bills. And, after considering the evidence, it may not consent to a TTP arrangement. 

  • Prompt payment

    If HMRC agrees a TTP arrangement, you must make your payments in full on the scheduled date, otherwise HMRC could immediately cancel the arrangement – and demand the total debt plus penalties.

  • Interest and penalties

    If a TTP arrangement is agreed, expect interest to be charged on the amount payable, but penalties may be wavered if you’ve contacted HMRC promptly and you’ve acted responsibly to address the matter with HMRC.

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Coronavirus (Covid-19)The latest business guidance and support