Finance experts explain that subtle changes made in the approach taken by the HMRC can possibly cause the UK SMEs to get into some cash flow issues.
The recent HMRC changes that most financial experts have noticed is that the tax office is less willing to agree time to pay arrangements, which is used to help businesses in spreading their payments.
The new changes in effect could also mean it can issue demands, which can force businesses to pay up and ask questions later.
The changes made in approach taken by the HMRC could be in response to making the UK economic conditions more stable. This could possibly lead to a tougher stance on paying taxes.
As the latest UK economic growth forecasts an upward revision, it has contributed towards a more optimistic outlook and in this situation the government (in disguise of HMRC), is less willing to exempt businesses that do not pay their taxes on time.
Over previous years, business leaders were likely to be treated sympathetically when they contacted HMRC to alert them regarding their cash flow issues.
Consider this example for a better understanding; a business leader would contact the tax office explaining them that the company would be unable to pay their quarterly VAT returns.
Rather, the businesses offered a payment plan to the HMRC which was accepted immediately without any further questioning. During this time, offers of payment terms based on 12 months were common practice.
Now, this situation has completely changed and the businesses (regardless of their size) are expected to pay their taxes on time in all but exceptional situations.
However, we believe that despite all this, it is still possible for us to secure a ‘Time to Pay’ arrangement, if certain steps are followed.
For example, it can be beneficial if a business has the ability to present the authorities with a strong trading history, especially where it is supported by the records of regularly paying taxes on time.
Moreover, having strong evidence that indicates the company’s ability to meet the payments over time can also be helpful in creating a positive impression.
Along with compiling a string set of financial information to support their request for a ‘Time to Pay’ arrangement, a company should most likely aim to demonstrate that they are prioritising good management and resourcing initiatives such as preparing for making tax digital and Brexit related contingency plans. Such progressive thinking is most likely to be favoured by the HMRC.
For securing a ‘Time to Pay’ arrangement, a company also need to prepare an updated and realistic payment plan. More than anything, the terms and conditions included in the payment plans should be achievable and the company should possess the ability to meet the payments.
Apart from waiting for a positive response from the HMRC, UK SMEs should also prepare for a far greater scrutiny of their financial situation. One way businesses can keep cash flow issues from arising is by opting for cash flow finance, which is a funding option made available to start-ups and SMEs in need.
Along with this funding option, businesses can use digital accounting for effective cash flow management.
With increased use of online payment systems, there has been greater transparency which has allowed the government to accelerate the payment of taxes. Once the businesses are able to manage their cash flow issues, HMRC changes on access and reliance on updating financial information possibly means that there is now an expectation to pay taxes on time.
If your company has already defaulted on a tax payment or is expecting to do so, it is essential to seek expert consultation at an early stage. If the HMRC changes its mind and decides to take recovery actions, an authority will visit your company to draw a schedule of assets (which forms the basis of a walk-in possession agreement).
Depending on what could possibly happen later, HMRC can remove assets from the company. If the company is in debt (which is usually the case in such circumstances), it might issue a statutory demand followed by a winding up petition, ultimately driving the business into compulsory liquidation.
During such situation it is essential that businesses are able to secure a ‘Time to Pay’ arrangement as long as it takes the right approach, supported by the right documentation.