Time To Pay, or Voluntary Arrangement?

In November 2008 the Business Payment Support Service (BPSS) was launched. Its purpose was to give businesses and individuals the opportunity to request additional “Time to Pay” their outstanding taxes, known as Time to Pay Arrangements (TTPs).

The number of TTPs has fallen year on year. The number granted across all tax regimes in 2009 was 240,700, in 2010 this reduced to 139,200 and in the first quarter of 2011 the number was down to 37% compared to the same quarter in 2009.

In line with the declining number of TTPs approved, the number of refusals has increased, albeit at a significantly lower level. The level of refusals was 2.7% in 2009, in 2010 6% and in the first quarter of 2011 9.3%.

It is important to realise that HM Revenue and Customs (HMRC) is inevitably a creditor of almost every business that goes bust and that it is perceived that they are often the first creditor to suffer from non payment, with businesses paying their suppliers in priority to them.

It is crucial to remember that a TTP is an informal agreement with HMRC only. Other unpaid creditors can still take action. If a default occurs with the TTP, or the request was refused, tough enforcement action will ensue as HMRC are not likely to be shy about collecting in what is due to them.

A more formal alternative to a TTP is a Voluntary Arrangement (VA). A VA works well with a business that is suffering from financial difficulties, say due to the loss of a key customer, a sudden shift in the costs of materials or similar, but where the core business is robust and forecasts show that it has a good chance (given some breathing space) of survival going forward. The CVA is a formal agreement with all of a business’s creditors in full and final settlement of the debts due to them. A key point here is that in many cases where HMRC have refused a TTP, they have accepted a VA, which binds them equally with all other creditors.

So, has the TTP had its day? It was certainly a very good tool when measures were taken to deal with the recession, but it is not a formal procedure; it does not bind all creditors and they are becoming harder to get. The VA in the right circumstances is the belt and braces alternative to the TTP.