How to manage your tax payments

As HMRC’s approach to COVID-19 continues to evolve as the crisis unfolds, we take a look at two facilities it already has in place –  ‘Time to Pay Arrangements’ and ‘Quarterly Instalment Payments’ which could help you to manage your tax payments…

Time to Pay Arrangements

Time to Pay Arrangement is a debt repayment plan to HMRC for your outstanding taxes.  If you are considering this arrangement, we advise having the following information to hand to help HMRC make a decision:

  • Your HMRC reference number (for example, your 10-digit Unique Taxpayer Reference or VAT registration number).the tax liability that you are finding it difficult to pay and the reasons why
  • What you have done to try to obtain the funds to settle the liability.
  • Your thoughts on how much you can pay immediately and how long you may need to pay the rest. Clearly, the longer the payment period, the more chance that HMRC will challenge the application.
  • HMRC may ask for evidence, such as cash flow forecasts, monthly management accounts or copies of bank statements, showing that you will be able to pay future instalments.
  • HMRC is likely to want to understand your financial position, such as your income and expenditure and your assets and liabilities.

If you have entered into a Time to Pay Arrangement with HMRC before, then it is likely that they may ask more in-depth questions. In more complex cases, they may ask for additional evidence before they make a decision.

Quarterly Instalment Payments

Companies that pay Corporation Tax by Quarterly Instalment Payments (QIPs) often base the calculation of tax payable on annual budgets or other forward-looking projections. These may have been prepared before the potential financial implications of Coronavirus were apparent. Such companies can reduce their QIPs, based upon updated expectations of profitability, without prior approval from HMRC though they should keep a brief summary of their reasons for doing so.

If ultimately Corporation Tax is underpaid, interest will be charged by HMRC at 1.75% per annum (to be reduced following the reduction in the Bank of England’s base rate) on amounts underpaid.

In such uncertain times we consider that there is little or no risk that companies will be charged a penalty if tax is underpaid. When QIPs were introduced, HMRC were clear that penalties would only apply if companies were being reckless or ignoring QIPs completely.

If companies consider they have overpaid QIPs, they can request a repayment from HMRC. This is generally paid without query within 2-3 weeks, unless there is an open enquiry. If the amount is over £150,000 additional security measures need to be complied with by HMRC before payment can be released.

Available assistance

A dedicated helpline has been set-up by HMRC to help businesses and self-employed individuals in financial distress and with outstanding tax liabilities. Through this, businesses like yours may be able to agree a bespoke ‘Time to Pay’ arrangement.

If you are concerned about being able to pay your tax due to Coronavirus, call HMRC’s dedicated helpline on 0800 0159 559.

Please also get in touch with your usual Baldwins contact if you need assistance in preparing an application to HMRC for a Time to Pay arrangement, if you think you may have overpaid corporation tax via QIPs or if you wish to discuss reducing your quarterly payments.

Also see: Updated Guidance for businesses and employers to plan and respond to the Coronavirus crisis