On top of this, HMRC want their cut and a business may find that it has to make a choice between paying its workers or paying HMRC. In a bid to keep the business afloat, tax bills may be paid late or not all. In this situation, can businesses expect a sympathetic ear from HMRC?
Business Payment Support
The home page of the HMRC website (http://www.hmrc.gov.uk/) asks `Does your business need extra time to pay its tax bill?’’ The question, in large typeface on a blue background is given a degree of prominence that suggests that help is at hand. But what form does this help take and is it enough?
The launch of HMRC’s Business Payment Support Service was announced during the pre-Budget report on 24 November 2008. The service is billed as a `dedicated Business Support Service designed to meet the needs of businesses affected by the current economic conditions’. The service is targeted at businesses that are having difficulties meeting tax, National Insurance, VAT or other payments owed to HMRC.
As many tax payments are made in arrears, businesses may find that they are in a different place financially to that prevailing during the period to which the liabilities relate. For example, corporation tax is payable nine months after the end of the company’s accounting period.
Therefore, a company with an accounting period ending on 31 May 2008 would need to pay its corporation tax by 1 March 2009. While the business may have made profits for the year in question, changes in the economic climate since the year end may mean that they no longer have the cash available to meet their corporation tax liability.
Businesses who are worried about being able to meet payments of tax, VAT or National Insurance or who anticipate problems in paying payments that are coming due can ring the Business Payment Support Service on 0845 302 1435 for advice and help. The intention is that staff manning the Business Payment Support line will be able to review the circumstances surrounding the payments difficulties and discuss temporary options to alleviate the immediate problem. For example, this may take the form of allowing payments to be made over a longer period.
HMRC state that in most cases the Business Payment Support line will be able to give the caller a decision in about ten minutes. However, in more complicated case it may take longer to formalise a solution, and it may take several calls and more detailed discussion before a payment arrangement can be finalised.
Before calling the Business Payment Support line, businesses should ensure that they have the relevant information to hand. This will include the tax reference number, details of the tax liability to which the payment difficulties relate and basic details of the business income and outgoings. However, HMRC advisers should only ask for the information that they need in order to make a decision.
This help comes at a cost. Although, where solutions such as these are arranged in advance, HMRC will not charge additional late payment surcharges, interest will still be due on payments made late where this is applicable.
Businesses can now also make tax payments by credit card. While this may offer a short term solution, credit card payment attract a transaction fee and if the credit card bill is not paid off in full, the interest charged may mean that the business ends up paying significantly more at the end of the day.
Act Sooner Rather Than Later
The Business Support Payment Service is only for new enquiries and designed to help businesses whose tax payments are not already late. It is vital, therefore, that those businesses who want a sympathetic hearing from HMRC act in advance rather than burying their heads in the sand. The window of opportunity offered by this new service runs out once the payment becomes due.
This is all very well, but many businesses fighting for survival will live from day to day and may not even realise that they cannot pay their tax until the payment is overdue. For example, they may be relying on receiving a payment to cover the bill and only find themselves in difficulties if that payment does not materialise on time. For businesses in this situation, the new Business Payments Support Service may offer little in the way of comfort. Businesses whose payments are already late or who already have payment arrangements in force may need to take a different route.
It is a fact of life that many businesses will simply ignore tax demands that they cannot pay. Unfortunately, HMRC will not do the same. In the event that a business is having problems paying a tax liability that is already overdue and HMRC have already contacted the business about the overdue amount, it is important that the business faces up to the problem. Ignoring the demand will not make it go away and HMRC take more kindly to people who try and help themselves.
In this situation the business should contact the HMRC office that contacted them about the overdue amount. It is better to be honest about any cashflow problems and payments difficulties rather than promising to pay and failing to deliver. This way HMRC can discuss payment options and explain how legal action can be avoided. After all, it is in HMRC’s interests to receive some of the money owing rather than none at all.
Likewise, if payment arrangements have been agreed and the business is unable to make the agreed payments, the business should contact HMRC to review these and to see if alternative arrangements can be put in place, rather than defaulting on the payment.
HMRC will take court action to recover payments if other avenues have been exhausted and businesses fail to co-operate or enter into payment arrangements. However, a warning letter will be sent before action is taken. If a business receives such a letter, again it should not be ignored. The business may still be given time to pay and should contact the HMRC office that sent the letter to discuss what can be done. In the event that they cannot get through, HMRC advise businesses to contact the new Business Payment Support Service for help. Even at this late state, setting up a payment arrangement is preferable to court action for all concerned. This remains the case even where court proceedings have been started. The business is still advised to contact HMRC to discuss the problem and to see if a solution can be found.
Facing Up to the Problem
Although HMRC will not waive tax payments, they do acknowledge that in the current economic climate businesses may be struggling to pay amounts due. The Treasury coffers also take a hit in times of recession as tax receipts fall and it is therefore in HMRC’s interests for businesses to survive and continue to pay tax than to be forced into liquidation.
However, more help is available for those who help themselves. Facing up to the problems and acting where payment problems are anticipated will allow tailored payment arrangements to be agreed in advance. This will also ease some of the stress that business is under. Although interest is payable on payments made after the due date, spreading tax payments over a period of time may allow businesses to keep the wolf from the door.