HMRC Time to Pay scheme Submitted on 10.05.2010

What is Time To Pay?

Everyone is expected to make payment in full by the due date where they have the means to do so, except cases where there is a statutory right to pay by instalments. Where customers are unable to pay in full by the due date HMRC can use its discretion to allow a customer to pay over a period providing certain principles are followed.

Under the Commissioners for Revenue & Customs Act 2005 the Commissioners have the responsibility for the collection and management of the taxes, duties and national insurance for which HMRC is responsible, and it is within this responsibility that HMRC has limited discretion to allow payment after the due date.

Where HMRC agree that payment can be made after the due date this is known as Time To Pay.

What are the conditions to meet for Time To Pay? 

In order for the customer to be allowed TIME TO PAY they must meet set conditions. These are:

• Means to make the agreed payments
• Means to pay other tax liabilities that become due during the Time To Pay period
• The Time To Pay period must be as short as possible

Your right to pay instalments

In some specific cases the customer has the statutory right to pay tax by instalments.

The legislation clearly details the types of tax covered by the statutory concessions and the circumstances in which they apply.

Legislation

The legislation that covers cases where there is a statutory right to pay by instalments is:

• Income and Corporation Taxes Act (ICTA)1988/S34(8) tax due on lease premiums
• ICTA88/S137(4) employment income net underpayments (group N)
• Taxation of Chargeable Gains Act (TCGA) 1992/S280 tax due on chargeable gain paid by instalments
• TCGA92/S281 tax on gifts.

Dealing with requests

Where the customer has a statutory right to pay by instalments they must advise HMRC that they wish to exercise that right. Debt Management and Banking cannot agree these requests.

SA cases. Requests to pay by statutory instalments must be approved by the office with SA technical responsibility. Arrangements for collecting payment by statutory instalments are handled by the office responsible for processing. To find out which office is responsible for processing and which has technical responsibility use the SA ‘Maintain Responsible Office’ function.

COTAX cases

Where an inspector has agreed that the statutory provisions apply they will: 

• Determine the amount payable by instalments
• Set the clerical interest indicator
• Informally standover the amount of debt to be paid in instalments
• Note COTAX with “statutory instalment case” and include the total amount and timescale of the instalment arrangement

Tax Credit Overpayments

Customers who have a Tax Credit overpayment are offered the option of spreading their repayment over 12 months without question. Customers are advised of this option on the TC610 notice to pay letter. The 12 month period begins on the due date that is displayed on the TC610. If more than 12 months is required you may seek further advice.

Other cases

In all other cases there is no right for any customer to be granted Time To Pay (TIME TO PAY).

Principles of Time To Pay

Time To Pay arrangements allow HMRC to collect tax in a cost effective way. They allow viable customers who cannot pay on the due date to make payment(s) over a period that they can afford. Arrangements are tailored to the ability of the customer to pay and are typically for a few months although they can be longer. TIME TO PAYs lasting over a year are only agreed in exceptional cases. Most arrangements involve regular monthly payments being made but in exceptional cases may involve a short period of deferral.

TIME TO PAY arrangements fall within the scope of HMRC’s discretion provided the following principles are followed:

• Objective criteria are applied in each case
• TIME TO PAY arrangements are entered into on a case by case basis
• TIME TO PAY is only agreed where HMRC is satisfied that the customer cannot pay their liability on the actual due date(s)
• The customer offers the best payment proposals that they can realistically afford. If their ability to pay improves during the TIME TO PAY period then they must contact us and increase their payments/clear the debt
• TIME TO PAY is only agreed where HMRC believes that the customer will have the means to pay the taxes included in the TIME TO PAY arrangement and any other taxes outside the arrangement which become due during the TIME TO PAY period
• The TIME TO PAY period is as short as possible
• The same principles are applied to all taxpayers, although the detail of processes can be tailored to reflect the risk/return associated with different liabilities. As a rule the larger the liability the greater the risk and the greater the need for more information.

Other guidelines

Under no circumstances can HMRC ever reduce the amount of tax due as part of a TIME TO PAY arrangement. If repayments of tax become due during the TIME TO PAY period HMRC must offset these against the debt. HMRC cannot on the one hand allow TIME TO PAY whilst at the same time issuing a repayment of tax.

We can only agree TIME TO PAY based on the customers means to pay and can’t base it on other factors. For instance we can’t allow TIME TO PAY on the basis that a business could invest this money to produce greater payments of tax in the future.

For business taxes the TIME TO PAY duration should be less than 12 months. Exceptionally periods in excess of 12 months can be considered. Applicable interest will always be charged when payments are received after the due date, irrespective of whether TIME TO PAY has been agreed or not.

HMRC is bound by TIME TO PAY agreements that it enters into but is entitled to withdraw if

• New facts come to light that don’t support TIME TO PAY
• The customer has misled us or been untruthful
• The customer defaults on the arrangement or does not satisfy the conditions of their TIME TO PAY
• Any other reason comes to light where it becomes apparent that tax is at risk

Cant pay or wont pay

When considering whether to agree a Time to Pay (TIME TO PAY) arrangement you firstly need to consider if there is a need for TIME TO PAY or if the customer is just trying to delay paying. In other words is the customer a ‘can’t pay’ or a ‘won’t pay’.

Can’t Pay

‘Can’t Pay’ is defined as the customer who wants to make payment, but currently doesn’t have the means to do so. In some instances the situation is actually more complicated than this and a business may have some money available but in order to stay in business they need to pay other costs, for instance wages. In these cases we must carefully consider the impact it would have on the business if they paid us. If they could no longer trade then they can be considered as a can’t pay. Where possible we would be expecting the business to approach their other creditors and be asking them for TIME TO PAY as well as HMRC.

Some payments such as dividends and repaying director’s loan accounts should never be paid in preference to HMRC.

Where the customer clearly shows that they ‘can’t pay’ as opposed to a ‘won’t pay’, our aim is to negotiate a payment arrangement that allows them to clear their debt and helps them to make future payments on time, where this is realistically possible. Where someone can’t pay and their best proposals show that they can’t afford to meet future liabilities then we cannot allow TIME TO PAY.

Won’t Pay

‘Won’t pay’ is simply defined as the customer who can, but will not, make payment. Where the customer shows that they have the means to pay we won’t agree a TIME TO PAY arrangement and will look to take enforcement action as soon as possible.

Establishing ‘won’t pay’ and ‘can’t pay’ status 

Telephone is the preferred contact method as we can question the customer to gain information so we can judge if they are a ‘won’t pay’ or a ‘can’t pay’ case. We can also gather further information about the customer to allow us to reasonably assess:

• The customers viability
• Likelihood of a TIME TO PAY arrangement succeeding, and
• Suitable enforcement options if TIME TO PAY is not successful or can’t be agreed.

The telephone will also allow us to deal with requests more efficiently, as we can gather information more quickly and in turn make the decisions to accept or reject more quickly. When we agree a TIME TO PAY we can also make it clear to the customer what the conditions of the arrangement are and what will happen if they do not stick to the arrangement.

When phone contact is not appropriate

There may be times where using the telephone to discuss TIME TO PAY arrangements is not appropriate (i.e. where there is a disability). In these cases you will need to consider the individual’s requirements and tailor your approach accordingly.

Helping you decide if a customer can’t pay or won’t pay

You may be able to establish won’t pay or can’t pay status after briefly speaking to the customer, but on other occasions you may need to have a more in-depth conversation and even review additional documentary evidence such cash-flow forecasts before you can determine the customer’s ability to pay.

The amount of information required increases with the level of risk to the Exchequer; and the greater the debt the more information is required. This information will help you establish if the customer is a can’t pay case and will also help you to determine if the customer’s proposals meet the conditions of TIME TO PAY.

Call Justice Goddard on 0844 822 0845 to speak to a friendly advisor who will talk you through your options