Are HMRC Withdrawing Support for Time To Pay Arrangements?

I have heard through the grapevine that HMRC are looking closely at withdrawing support for the Time To Pay arrangements from this April and these arrangements have been so popular in the past with SMEs in clearing company debt; too popular, perhaps. Some may be surprised to hear me say, but I believe generally that HMRC do a good job in very difficult circumstances.

IT System Changes and Staffing Losses

HMRC have had to endure IT system changes which have not always been as successful as they should have been. Cut-backs in staffing numbers reduction in pension benefits as have all civil servants along with chopping and changing of what jobs are completed where. The communication systems were antiquated though they are trying to catch up and some at the higher levels finally have access to external email. There is an awful lot of confusion inside and outside regarding the new phone systems which frankly leave a lot to be desired as there is only so many times you can hear Vivaldi or Green Sleeves before you start banging your head on the desk in tune with the beat.

Attempted humour aside, any cut-back on the SMEs ability to agree a time to pay arrangement would be a severe set-back to those companies who genuinely need help when coming out of recession. We deal with company debt and HMRC negotiations as part of our work and the time to pay arrangement has been a valuable tool and saved some companies - no question.

The longest recession in recorded history

Coming out of a recession is bad enough but coming out of the longest recession in recorded history is another. I am hoping that Carney keeps the interest rates down as businesses need as much help as is possible. Okay, I know there will be some out there saying “Well I pay my taxes on time so why shouldn’t they?” I accept the point, but I do come across a large percentage of smaller businesses who have cut to the bone to survive. Once a company does this they are very vulnerable and it is easy to get into difficulty for no other reason than a larger business debtor has decided to pay later than agreed. You can argue these companies should not have placed all their eggs in one basket, but the reality is these smaller businesses represent a significant part of the British economy.

I appreciate these HMRC time to pay arrangements are time consuming and so I assume they are costly to manage and monitor, but what is the alternative to a time to pay arrangement? 

IMPACT OF GOVERNMENT CUT BACKS ON TIME TO PAY ARRANGEMENTS

There has been much talk in the media over public service cut-backs but what is relatively unknown is the additional pressure to HMRC over recent years due to the chaotic implementation of various software systems. These software systems were intended to assist the user but have as usual caused divisions internally as to just how useful they have been considering the huge cost to the public purse. I know from conversations with HMRC staff that the systems have been ‘a bit of a nightmare’ to implement and ‘not user friendly’ enough. You probably won’t be surprised to learn they were designed to be simple to implement and to be extremely user friendly.

To make matters worse HMRC is under increasing pressure to bring in more revenue yet staff numbers are under pressure and the heads of departments expected to deliver cost savings. The Public and Commercial Services Union (PCS) has instigated protests over the cut backs in benefits and proposed job losses resulting in a recent short strike of 55,000 call centre and face to face enquiry centres across the UK. So if you are seeking a time to pay arrangement be aware the voice at the other end of the phone may have their own problems too.

There have always been opposing views on the value of time to pay arrangements (TTP) with those on the supporting side saying the HMRC arrangements keep employees in work. On the opposing side however there are those who insist they are of little value and keep zombie companies afloat when they should be dead and buried. Whoever is correct the future of time to pay arrangements is in question once again as staffing reductions are very likely to impact on the number of proposals it is possible to monitor.

It is extremely difficult to establish accurately just how many proposals are now declined as HMRC no longer publish the relevant figures ceasing in early 2012. The last accurate figures published by HMRC from 2011 showed and sharp increase in the number of proposals declined in the twelve months from 2010-2011 from 2.7% (2010) to 9.3% and I suspect based on personal experience this number has increased even more sharply. Undoubtedly whatever your politics the change of government has made a huge difference to the change of stance of HMRC. They are under increasing pressure to bring in more revenues from this government and with less staff.

So what is the likelihood of getting a time to pay arrangement agreed with HMRC in the current environment?

Frankly the vast majority of TTP arrangements are doomed before they start as there is usually little thought put into them by either party. The company director often under pressure agrees to almost anything to get rid of the HMRC pressure and the HMRC are juggling a lot of cases. HMRC in their defence have an almost impossible job as they are being asked to do more for less and are working in difficult circumstances so they are also likely to be demotivated.

In order to agree a time to pay arrangement you need to have motivated people to monitor them and the terms agreed. All of this effort takes time and staff. I believe this area will and is having a definite impact on the likelihood of getting a time to pay arrangement agreed with HMRC.  It is difficult but I would put the chances of acceptance at around 30-40% at best based on personal experience over the last twelve months. I can’t prove this of course as I mentioned earlier the figures are not published now but if the number of proposals turned down is anywhere near this figure then there would have been huge increase in the number of TTP arrangements declined.

So what happens if your time to pay arrangement fails? At the moment they (HMRC) are particularly aggressive when pursuing failed agreements and will inevitably wind the ‘culprit’ company up almost immediately and certainly within days unless there are exceptional circumstances. A key element in failing time to pay arrangements is when due taxes are very often overlooked and not paid – this triggers a default and the subsequent lack of confidence by HMRC.        

One thing for sure is that with banks unwilling to lend despite all the political and banking rhetoric and HMRC getting tougher it can only be bad news for SMEs.

Written By Mike Smith

HMRC Responsible for Over 60% of Winding Up Petitions

The HMRC are still responsible for over 60% of all winding up petitions so they are still aggressive and a clear threat to companies struggling with failed time to pay arrangements.

Far too often we get calls from directors who are desperate for help, but who have tried to muddle through and left things to the very last minute. When HMRC are involved and they have decided to issue, or even threaten, a winding up petition you must act immediately. You have a limited time window to respond and act. Few directors fail to realise that once the HMRC have started to pursue a winding up petition they will not stop until your company is successfully put into liquidation, one way or another. The only way HMRC can be stopped is via the Court once the petition has been advertised and this can be very expensive as you will be expected to pay the HMRC legal costs. 

It’s also worth remembering that once advertised your bank account will be frozen and all the company assets are frozen too, so they cannot be sold which can often have disastrous affects if you want to start afresh with a new company. Any creditor can use the same petition to close your company even if you have paid to stop the original petition. We have just had a client come to us seeking help after borrowing a very substantial amount of money from family hoping to stop the petition. Having paid the High Court petition another creditor stepped in and took over the petition but the directors were unable to raise more funds leaving them in an impossible situation.  

Rangers Football Club CVA Proposal refused by HMRC

Rangers Football club had offered those owed money a reduced payment deal via a Company Voluntary Arrangement, funded by an £8.5m loan from a consortium led by Charles Green. Administrators Duff and Phelps confirmed on Tuesday they now expect HMRC to refuse the proposal at a vote on Thursday afternoon.

Mr. Green said: he was “hugely disappointed” by the rejection of the CVA proposals by HMRC, whose debt currently stands at around £21m in unpaid VAT and PAYE.

Rangers are currently awaiting an outcome to the First Tier Tribunal in a case over the illegal use of an employee benefits trust to pay players and staff between 2001 and 2010 that could result in the club being served with a tax bill of approximately £75m.

HMRC had previously agreed with Duff and Phelps to appoint neutral insolvency firm should Rangers have to be liquidated. This came after the administrators had asked creditors to appoint them as liquidators should the CVA fail.