HMRC has published two new policy papers covering their position on VAT debts.
The first covers HMRC’s approach to tax debt and covers:
- contact and discussion on ways to settle debt
- tailored support offered
- the role of agents/supporters
- general debt advice
- actions against taxpayers who do not engage with HMRC, or refuse to pay
- HMRC enforcement powers
- removal of assets
- recovery of debt directly from a taxpayer’s bank account
- County Court proceedings
- use of debt collection agencies
The second provides guidance on HMRC’s support for taxpayers with tax debt and includes:
- contact with HMRC
- ways in which HMRC can assist
- payments options, including Time To Pay (TTP)
- bespoke TTP arrangements
- how affordable payments are calculated
- the role of honesty
- the use of the Citizens Advice Bureau
- treatment of assets
- expectations of first contact with HMRC
- what happens after a time to pay arrangement has been agreed
- enforcement powers
Interestingly (well, it is all relevant I suppose!) HMRC say that it typically has more than half a million TTP arrangements in place at any one time, and nine out of ten are completed successfully.
Planning
There are a number of schemes and methods to legitimately defer or reduce VAT payable. These include the Flat Rate Scheme, Cash Accounting, margin schemes, global accounting. Other basic planning may involve; tax point planning, invoice timing, ad use of Bad Debt Relief (BDR).
Advice
Our advice is always to contact HMRC as soon as possible if a business has tax payment problems. In some cases, the department is surprisingly helpful. As the statistics demonstrate TTP arrangements are, on the whole, a very successful method for both sides to deal with tax debt.
Reminders
- if HMRC has no idea of the cause of debt, and no contact has been made by the taxpayer. the usual assumption is that the taxpayer is ignoring it and the full force of debt action usually follows
- tax debt never goes out of time, as there is no statute bar
- paying taxes late usually results in penalties but these may be avoided if a TTP agreement is in place at the appropriate time
- A TTP agreement usually means that HMRC will not use its enforcement powers
- the length of TTP agreements depend on the quantum and nature of the debt, however for VAT unlikely to be beyond 12 months
These policy papers provide helpful guidance and explanation of HMRC’s approach, especially in these difficult economic times as a result of COVID 19 and Brexit.