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Managing your tax payments

Two ways that His Majesty’s Revenue & Custom’s (HMRC) offer flexibility to taxpayers are Time to Pay Arrangements and Quarterly Instalment Payments.

Time to Pay Arrangements

A Time to Pay Arrangement is a debt repayment plan to HMRC for your outstanding taxes. Based upon our previous experience assisting clients with these arrangements, we recommend having the following information to hand to help HMRC make a decision:

  • your HMRC reference number (for example, your 10-digit Unique Taxpayer Reference or VAT registration number)
  • the tax liability that you are finding it difficult to pay and the reasons why
  • what you have done to try to obtain the funds to settle the liability
  • your thoughts on how much you can pay immediately and how long you may need to pay the rest. Clearly, the longer the payment period, the more chance that HMRC will challenge the application
  • HMRC may ask for evidence, such as cash flow forecasts, monthly management accounts or copies of bank statements, showing that you will be able to pay future instalments
  • HMRC are likely to want to understand your financial position, such as your income and expenditure and your assets and liabilities

If you have entered into a Time to Pay Arrangement with HMRC before, then it is likely that they may ask more in-depth questions. In more complex cases, they may ask for additional evidence before they make a decision.

Quarterly Instalment Payments

Companies that pay Corporation Tax by Quarterly Instalment Payments (QIPs) often base the calculation of tax payable on annual budgets or other forward-looking projections. Such companies can reduce their QIPs, based upon updated expectations of profitability, without prior approval from HMRC, though they should keep a brief summary of their reasons for doing so.

If ultimately Corporation Tax is underpaid, interest will be charged by HMRC at 3.25% per annum on amounts underpaid (with effect from 3 October 2022).

In such uncertain times we consider that there is reduced risk that companies will be charged a penalty if tax is underpaid. When QIPs were introduced, HMRC were clear that penalties would only apply if companies were being reckless or ignoring QIPs completely.

If companies consider they have overpaid QIPs, they can request a repayment from HMRC. This is generally paid without query within two-to-three weeks, unless there is an open enquiry. If the amount is over £150,000 additional security measures need to be complied with by HMRC before payment can be released. HMRC will pay interest at 2% per annum (with effect from 3 October 2022) on QIPs overpaid.

Would you like to know more?

If you would like to discuss the above and how it may impact you, please contact Andrew Sanford or Tim Shaw using the contact details on this page.

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