Insights

As every business owner should know, never underestimate the potential impact of cashflow. Sound businesses have fallen victim to the implications of cashflow problems and VAT is a common issue. Many businesses have faced the scenario of having a full order book, large VAT liability and insufficient cash in the bank to pay it.

A ‘time to pay’ scheme for taxpayers who cannot pay their tax liabilities by the specific deadline has existed for some time but now, a new facility to easily create a VAT payment plan online has been launched. This means it’s no longer always necessary to make arrangements for time to pay over the phone or in writing, depending on the amounts involved.

Time to pay is a very important facility because it ensures that taxpayers who find themselves in difficulties may not incur penalty fines, provided the arrangements are made before the tax is overdue.

Typically, time to pay agreements are not longer than 12 months, although there are exceptions. HMRC usually tries to make the payment term as short as possible to ensure it gets the money sooner rather than later. Taxpayers can attempt to negotiate terms but should appreciate that the maximum repayment term available is 6 months, any longer periods can only be approved through the traditional business support facility.

The new time to pay VAT facility is available to VAT registered business who are required to complete VAT returns quarterly and pay the relevant tax due. Problems with payments can arise if cashflow levels are always lean and a business must pay HMRC for VAT owed before it is actually paid by the customer. In this case, do remember there is a cash accounting VAT scheme that may help.

Online time to pay VAT facility criteria

To be able to use the online time to pay arrangement facility, the following conditions must have been met:

• Latest VAT return must have been filed (but the payment may be outstanding)
• Amount owed to HMRC is £20,000 or lower
• Request for extra time to pay is made within 28 days of the payment deadline
• No other existing time to pay agreements are already active
• The business does not have other debts with HMRC
• The repayment term sought is six months or less

It is possible to access the online time to pay VAT facility through the government gateway.
If you are unsure about whether this scheme would be beneficial it is worth speaking with your tax advisor.

During the Covid pandemic there was a scheme available that allowed VAT return payments to be deferred between March-June 2020. Thereafter, taxpayers could opt into a form of time to pay agreement, but this was a one off scheme. It is worth noting that the rules that applied to this special scheme do not apply to this new online time to pay VAT process, which is simply moving the standard time to pay facility online

Keep an eye on cashflow

As tax advisors who specialise in small and high growth businesses, one risk that exists with these new easy access time to pay agreements is that they may be masking some other underlying problems that impact cashflow. If you regularly face difficulties paying your VAT bill at the quarter end, it is worth asking your accountant or tax adviser to examine why and find ways to overcome the issue. Time to pay is very helpful but should never be regarded as a quick fix to a bigger business issue.

To discuss your business cashflow, VAT returns or any other aspect of business tax and accountancy, please contact us via partners@rjp.co.uk.