Cash-strapped firms risk going bust as tax loophole closes
HM Revenue and Customs (HMRC) will no longer accept Time To Pay (TTP) arrangements (where a payment system is negotiated to give a business time up to the next tax due date to pay a portion of its tax bill) from companies that paid out dividends while running up tax debts, said a spokesman for the HMRC.
Businesses that struggle with cash flow because of temporarily large outgoings or delayed payments from retail, foodservice and wholesale customers, had previously been able to ask for TTP arrangements. But, as of six months ago, HMRC started to refuse applications, said Paul Wainwright, partner at accountancy firm Mitchell Charlesworth.
It is typical for smaller, manager-owned, businesses to pay themselves low wages and provide a dividend at the end of the year, as it is tax efficient, said Wainwright.
Those that wish to continue doing this will need to start thinking about how they structure their cash flow in preparation for year-ending tax bills, said Ben Pinnington, a spokesman for Mitchell Charlesworth. "It's a blow. It was one way to manage cash-flow."
HMRC remains committed to helping businesses going through cash flow difficulties but can do little for those that have relied on TTP arrangements while using money elsewhere, said the HMRC spokesman.
It is likely that HMRC has stopped TTP arrangements in order to force companies to remunerate staff through wages rather than dividends as this will result in higher government revenue from Pay As You Earn and National Insurance, according to Wainwright.
