The growing scale of economic disruption amid volatility in financial markets as a result of the coronavirus (COVID-19) mean urgent steps are required to restore business confidence. As a result, businesses should welcome the fact that the government has taken steps to expand support offered through Time To Pay (TTP) arrangements in the recent Budget and in the March 20 2020 announcement.
Giving firms more time to pay VAT, payroll taxes and Corporate Tax—in effect expanding HM Revenue & Customs (HMRC) TTP scheme offering support through extended payment terms—has sent a strong signal that the government is listening to the concerns of business leaders who are worried about the impact of COVID-19 on cash flow.
The announcements made on March 20 also included a new Coronavirus Job Retention Scheme as well as deferred payments on the next quarter VAT payments until the end of June 2020. Businesses then have until the end of the 2020/21 tax year to settle any outstanding liabilities.
When facing financial pressures, and where cash is a commodity, a TTP arrangement with HMRC can be a key component of a successful turnaround plan that preserves an enterprise and safeguards jobs. Given the current economic turmoil, it may well be a critical tool in the economic armory, preserving the integrity of British businesses.
A TTP arrangement with HMRC is a structured repayment plan for any outstanding tax obligations. Companies that have defaulted on their payments in relation to Corporation Tax, VAT and/or PAYE can ask HMRC for additional time to pay. They assess the business case and can provide repayment plans that typically extend to 6-12 months.
As part of a package of measures, the government has launched a Coronavirus Business Payments Support Service specifically to help businesses in arrears with existing tax liabilities up to circa £100,000. Larger liabilities are expected to be dealt with on a case-by-case basis. Furthermore, the government launched a new helpline to support businesses and self-employed people who are concerned about not being able to pay their tax due to the financial impacts of COVID-19.
In addition, the Chancellor announced a refund on all Statutory Sick Pay up to two weeks for all businesses under 250 employees. Business Rates Relief was also dramatically expanded for those businesses in retail, hospitality and leisure.
HMRC is committed to supporting businesses via TTP arrangements that can demonstrate viability and present a strong case for support. Given the impact coronavirus is having on a broad range of industries, we would argue that TTP expansion will not only consider those businesses that have already defaulted, but also those that are trying to find solutions with an immediate need for cash.
The government has also launched the Coronavirus Business Interruption Loan Scheme (CBILS) to support long-term viable businesses who need additional finance for cash flow issues.
This scheme will be delivered by the British Business Bank (“BBB”) and will launch in “a matter of weeks.” While the BBB will provide a guarantee of 80% of the loan, the loans are expected to be approved and made by the clearing banks and other authorized lenders. There will be per lender caps and the scheme will support loans of up to £5m.
The decision to expand TTP and even provide a holiday in relation to interest and penalties resides with the government. Through BBB and TTP it is our belief that the way HMRC operates will have a major, sustained and positive impact for businesses throughout the UK. But this is a changing situation and more action may yet be announced by the Chancellor.
How Kroll Can Help
Kroll Tax Arrears Solutions team can work with companies, their funders and other stakeholders to determine whether a TTP arrangement is the right course of action. The Tax Arrears Solutions team works closely with specialists from Kroll Operational Improvement team. This dynamic complements a company’s overall restructuring program, assisting in quickly assessing and resolving any cash flow difficulties on a workable basis with a full understanding of the operation of any borrowing facilities. The team also works closely with lenders to facilitate distressed refinances, with a TTP arrangement often providing the additional headroom needed for deals to complete.
If lenders’ clients are considering approaching HMRC to defer a tax payment, regardless of the type and size of the debt, Kroll can immediately help to assess the position and quickly determine the options available.
Kroll has secured TTP arrangements for over 80 companies since 2018, helping to safeguard their viability and preserve more than 5,000 jobs.