In today's climate, many businesses and individuals are navigating ongoing changes to government support schemes, tax allowances, and compliance requirements. The impact of recent economic measures, such as the legacy of COVID-19 support schemes, updated penalty regimes, and modifications to existing tax allowances, has created a landscape where timely and practical tax planning can make a significant difference.
Time to Pay Arrangements
One highly relevant and practical tip for clients is to take advantage of HMRC's "Time to Pay" arrangements if they are experiencing temporary cash flow difficulties and are unable to pay tax liabilities on time. This facility can help avoid late payment penalties and interest, providing valuable breathing space for both individuals and businesses.
Key Features of the Time to Pay Arrangement:
Who can use it?
Any taxpayer (individual or business) facing short-term financial difficulty in paying tax liabilities (including income tax, VAT, and corporation tax) can apply to HMRC for a Time to Pay arrangement
What are the benefits?
Entering into a Time to Pay arrangement can result in suspension of late payment penalties, provided the taxpayer adheres to the agreed payment schedule
Which taxes are covered?
The scheme covers most major taxes, including income tax, corporation tax, VAT, and capital gains tax. The precise rules and availability may vary depending on the tax in question
How to apply?
Taxpayers should contact HMRC as soon as they anticipate difficulty paying a tax bill by the due date. Early engagement improves the likelihood of a favourable arrangement and minimises penalty exposure
Why Is This Tip Especially Relevant Now?
Penalty Regime Changes: Recent updates mean late payment penalties can quickly escalate if not addressed promptly. For example, for VAT accounting periods beginning on or after 1 January 2023, a 2% penalty applies after 15 days, another 2% after 30 days, and from day 31, a daily penalty based on a 4% annual charge applies. Income tax self-assessment will follow similar rules from 2026/27 for many taxpayers
Support for Businesses and Individuals: HMRC has explicitly signalled a willingness to support those facing genuine short-term difficulties, reflecting an understanding of current economic pressures
Late Payment Penalties and Time to Pay Arrangements Table:
|
Tax |
Penalties Apply without Deferral |
Penalty Applyed with Deferral |
Time to Pay Available |
|---|---|---|---|
|
Income Tax |
Yes |
No |
Yes |
|
Capital Gains Tax |
Yes |
No |
Yes |
|
(VAT) Value Added Tax |
Yes |
Yes |
Yes |
|
Corporation Tax |
Yes |
Yes |
Yes |
Additional Practical Considerations
Key Features of the Time to Pay Arrangement:
Time is of the Essence - Contacting HMRC early is essential. If you reach out within the first 15 days after a missed payment, penalties can often be avoided altogether.
Stay Compliant with the Arrangement - If the arrangement is not adhered to, penalties and surcharges may be reimposed retroactively.
Conclusion
Given the tightening of late payment penalty regimes and HMRC’s current willingness to work with taxpayers, encourage your clients to take a proactive approach if they foresee difficulty in making a tax payment.
Utilising a Time to Pay arrangement can help avoid escalating penalties and interest, offering a practical solution in challenging times. The arrangement is available for a wide range of taxes and is particularly beneficial in the present climate of economic uncertainty
If you need any tax advice in Milton Keynes give a call to the team at Holmes Accountancy on 01908 315716 or contact us here.
The tax tip is provided for general guidance only; further advice should be sought, for specific issues.
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