Before HMRC will agree to a Time to Pay arrangement they will want to make sure that you are trying to get your taxes right. That means your tax returns must be up to date – HMRC can’t agree to instalments unless it is clear what you owe. If you haven’t filed your 2020-21 tax return already you will get a late filing penalty of £100, but you can’t avoid that now so it’s time to deal with your taxes before things start to get really expensive.
Other things you should prepare before contacting HMRC about instalment payments include:
- An explanation your current financial difficulties and impact that Covid has had on your finances
- Your desired time frame for the instalments and proof that they are affordable
- Evidence to demonstrate you are managing your costs
- Explanations of your other debt financing and borrowings.
It is best to think about this as similar to applying for a bank loan: prepare monthly income and expense statements and a personal statement of assets and liabilities to prove to HMRC that instalment payments for arrears are affordable – remember HMRC will still expect you to pay other tax bills when they fall due. It is possible to agree payment plans that run for longer than 12 months, but HMRC will require a higher level of evidence.
It is essential to remember that setting up a Time to Pay arrangement requires commitment, it is only a deferral of payments, tax liabilities are not written off and you will still be charged interest as part of the agreement.
HMRC may also require up-front payments or periodic instalments by direct debit. If you don’t keep up to date with the instalment payments the Time to Pay arrangement can be cancelled, late payment penalties reimposed and HMRC is likely to start direct debt collection action against you.
So, clearly there are hoops to jump through to put a Time to Pay arrangement in place, but it is certainly worth sorting this out before April 1 to stop HMRC adding 5pc to your tax bill. If your case is complicated, you may need to consider seeking expert advice.
Dawn Register is head of tax dispute resolution at accountancy firm BDO
