How to spread tax payments

If business is not as great as it ought to be, then there are a number of strategies you need to consider, to limit other problems. And one of these may be putting an arrangement in place, to spread your payments of VAT and PAYE.

Of course, one of the first considerations is, should you still be in business? Normally, the answer to this question is positive, and it is a one-off incident such as a cancelled order, or perhaps a customer who has defaulted, that upsets cashflow in an unexpected way. Sometimes, equipment breakdowns can deal you an unexpected bill, as well as interrupting your output.

If cashflow is compromised, then one step you can take, is to look at how you might spread the cost of tax outgoings, such as VAT and the PAYE bill. It is always best to talk about this option as early as you come to realise you may have a problem. Often, a book keeper or accountant can help with these decisions, and help make timely contact with HMRC.

While HMRC does have a role in chasing up payments, and will levy fines, the organisation does have some flexibility in how it behaves. And, if you keep HMRC officials informed about your situation, then they can listen and exercise that flexibility. Fail to make contact, and they will follow their established procedures, which will lead to increasingly assertive action to recover what is owed.

One option is a TTP – or Time To Pay arrangement. This is agreed with your HMRC office, and will help spread the payment of outstanding tax over an agreed period. In order to successfully argue for your arrangement, you will need to provide evidence explaining why you cannot pay immediately, and show that this is likely to be a short term, rather than a permanent problem.

You will need to prepare a cashflow forecast for officials at HMRC to review, and a repayment schedule to settle off outstanding amounts you owe. Do not forget, you will also need to pay upcoming amounts of PAYE and VAT, as they become due – in addition to settling off the backlog that has accrued.

The key point to remember here is that HMRC can agree to a TTP, but the idea is that this is a one-off. If you regularly get into a situation where you think a TTP arrangement is needed, then there may be other fundamental business problems that need addressing. You shouldn’t be in business, if you cannot pay your costs – including taxes – when they fall due.

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