When you agree to a Time to Pay (TTP) arrangement with HMRC, you’re given a chance to manage your tax payments over an agreed timeframe, typically between six to twelve months. But what happens if you can’t keep up with the payments and default?

Consequences of Defaulting on a Time to Pay Arrangement

When a TTP payment is missed, you’ll typically receive an automated notification from HMRC. This is your cue to act quickly.

Reaching out to HMRC promptly to explain your situation can sometimes prevent further complications. They may offer a grace period or discuss adjusting the payment terms, depending on your circumstances and past relationship with them.

If you don’t respond or continue to miss payments without reaching out for help, HMRC will escalate their response. They might:

If a business repeatedly fails to adhere to the terms of a Time to Pay Arrangement, HMRC reserves the right to cancel the agreement.

If they do cancel the TTP, HMRC will require the immediate settlement of all outstanding taxes previously covered under the arrangement. This can tip a business into insolvency if things are already challenging.

When a Time to Pay Arrangement is breached, HMRC will often apply additional penalties on top of the immediate demand for outstanding taxes.

In addition to penalties, HMRC may also charge interest on the overdue amounts. This interest accrues from the date the payment was originally due until the full payment is received, further increasing the total debt owed.

Read HMRC’s current interest rates for late and early payments

If immediate repayment isn’t feasible, HMRC may issue a Distraint Order Notice. This allows them to seize assets from your business without needing to go to court. The assets are then sold, and the proceeds go towards clearing your tax debts.

In more severe cases, especially when significant debts are involved and there appears to be no viable solution to recover the amounts due, HMRC might issue a winding-up petition. This is a legal action taken to shut down your business. The petition, once approved by the court, leads to the liquidation of your company’s assets to pay off creditors, including HMRC.

Struggling to Maintain Repayments on a Time to Pay Arrangement to HMRC?

If your company is having difficulties in maintaining the repayments agreed upon in a Time to Pay Arrangement (TTP) with HMRC, you have two practical options available as a director:

  1. Closing the Company: One option is to close the company through a formal insolvency process, such as a Creditors’ Voluntary Liquidation (CVL). This process involves appointing a licensed insolvency practitioner to wind up the company’s affairs and distribute its assets to creditors, including HMRC.
  2. Try to Rescue the Company: Alternatively, you may explore options to rescue the company and continue trading. One potential solution is a Company Voluntary Arrangement (CVA), which is a legal agreement between the company and its creditors to repay a portion of the outstanding debts over an agreed period, typically lasting 3-5 years. A licensed insolvency practitioner must be appointed to propose and supervise the CVA.

If you need help understanding the best way forward for your company, we are well-equipped to assist you. With our extensive experience helping thousands of directors through challenging financial situations, we can guide you effectively. You can use our live chat during working hours or call us on 0800 074 6757.