The BPSS is designed to help people who are struggling to pay their tax on time, by setting up suitable payment arrangements. The taxes it can deal with include income tax, corporation tax, PAYE, National Insurance contributions and VAT. In the early days of the scheme HMRC were quite sympathetic and many businesses avoided bankruptcy as a result of agreements reached with them.
One of the main advantages of the BPSS is that once payment terms are agreed HMRC will not charge late payment surcharges on payments included in the arrangement, although interest will continue to be charged where it applies.
However, businesses should remember that the BPSS can only deal with new requests for time to pay, not with existing debts where the taxpayer is already in contact with HMRC or after the due date for payments has passed.
In the majority of cases HMRC will be able to make a decision in around 10 minutes. For larger liabilities or more complicated cases they may need to have a longer discussion or request more information.
Over the past year it has seemed more difficult to agree time to pay arrangements with HMRC with a noticeably less sympathetic attitude towards businesses. We have now heard that HMRC is turning down time to pay requests by businesses that have paid dividends as part of a remunerations package.
HMRC has said that where a company asks for a TTP arrangement and they recently paid out a dividend while they were running up a tax debt, they will refuse a TTP on the grounds that the business has preferred to use the money elsewhere and the shareholders should support the company.
Many companies pay dividends as part of a tax-efficient remuneration package; however it seems that HMRC takes the view that if a company has cash available to make a non-contractual payment to its shareholders, then it can pay at least part of its tax debts.
Help yourself. There are a number of things that a business can do to help its cashflow including using cash accounting and making sure all bad debt relief claims are up-to-date.
If this does work make sure you contact HMRC early and try to agree a time to pay schedule with them. The scope may be more limited than in the past and the time agreed relatively short (usually no more than 3-6 months) but it is better than nothing, and by agreeing a TTP arrangement before the due date for your VAT return you avoid a surcharge liability and a penalty, although interest on any outstanding amounts will still be due.