VAT is an area where cashflow matters the most and sometimes a business has a large VAT liability owed to HMRC but not the cash in the bank to pay it.
Even though HMRC have introduced a new VAT penalty regime it is still good practice to enter into a time to pay arrangement with HMRC before the imposition of penalties occurs.
HMRC have recently opened an online time to pay facility, which is designed to automate and simplify for certain situations.
A VAT registered business is an unpaid collector of taxes on behalf of HMRC, charging VAT to customers and paying it over to HMRC, and as most businesses operate quarterly VAT return periods, it can mean a business owes VAT to HMRC before it has itself collected all the VAT from the customer (especially when invoicing close to a VAT quarter end).
So as well as being a tax collector, a business can often be a lender (to HMRC) until such time as the business can reclaim its input tax back from HMRC.
The taxpayer contacts the Business Payment Support Service and after passing the security questions, the taxpayer details how much they owe, the reason it cannot be paid in full on the due date and then proposes a fair and reasonable payment plan. HMRC may then ask further questions and will almost certainly propose a counteroffer which is often less favourable.
From experience, HMRC will always say they cannot do more than 12 months (they can), and more often will try and limit the payment terms to 3 months, so it is often a case of asking for 9 months, being offered 3 months and settling on 6 months. It does depend somewhat on who you speak to on the day. I’ve had two associated companies, both owing roughly the same amount of money and on calling HMRC on the same day, obtained an 18 month plan for one but only 6 months for the other as HMRC were adamant that “we don’t do anything over 12 months” in the latter case.
The online process comes with a few conditions that must be met before you can apply :-
- The latest VAT return has actually been filed.
- The amount owed to HMRC is £20,000 or less
- Application is made within 28 days of the deadline
- Does not have another active time to pay agreement or any other debts with HMRC
- Maximum repayment term is 6 months
Assuming the conditions are met, the taxpayer login in via their government gateway and as is now the default for HMRC, you must use a specific link https://www.tax.service.gov.uk/set-up-a-payment-plan/govuk/vat/start there is no menu option if you just login to your gateway. You can login to gateway first and then click the above link or its just easier to click the link and then login.
If you have outstanding returns or the value of the VAT return filed is over £20,000, the first screen you see will be to say you are not eligible to use the online scheme and prompts you to call the Payment Support Service instead.
If the conditions are met, you are presented with a series of screens/questions which are answered in turn, selecting length of payment plan, etc.
Get in touch
If you’re struggling with payments of VAT or your business has cashflow issues, speak to our VAT experts and tax and business advisors who can assist you with better managing your cashflows and raising finance for your business. They can also help you with evaluating your tax liabilities, and business strategies for better business and cashflow efficiencies.
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