As the economy begins to open up again, there are still measures in place to protect businesses feeling the effects of the various lockdowns we have endured over the past year or so. However, with businesses now open, this also means that creditors will start to expect payment. So what does that mean for business owners?
Many businesses will have taken the opportunity to defer their VAT from March and June last year. HMRC has an online portal where you can opt to pay over a number of months, although you need to sign up for the scheme before 21st June 2021 to benefit. Currently, interest and penalties will not be charged, however, if you do not contact HMRC by 30th June 2021 to advise them that you are unable to repay your VAT, interest and penalties will be incurred from that date.
Unlike VAT, there has never been an option to defer your PAYE liabilities. HMRC expects these to be paid as normal, especially where a business has benefitted from monies received under the Coronavirus Job Retention Scheme (CJRS). As you may be aware, creditors are unable to issue statutory demands or winding up petitions until 30th June 2021 unless the creditor can prove that the outstanding liability is due to a debt that existed before the Covid-19 pandemic, or has arisen as a consequence of fraud.
HMRC has been clear from the outset that a condition of the CJRS grant was that related PAYE tax, employer National Insurance Contributions (NIC) and pension contributions due on wages were to be paid on time.
We have started to see clients receiving letters from HMRC where a company has received the benefit of the CJRS grant and has arrears in respect of PAYE and/or NIC. This correspondence is reminding clients of their obligations including, where a company is part of a Government-accredited scheme, a failure to keep their HMRC liability up to date may result in the company’s accreditations being withdrawn.
In addition, the HMRC Voluntary Arrangement Service issued a note advising that where a business has received monies under the CJRS and has unpaid PAYE, they are unable to support any proposals for a Voluntary Arrangement, unless those arrears are to be treated as priority payments in the arrangement, ahead of all other unsecured creditor claims (including other elements of HMRC’s claim).
HMRC has historically required businesses to meet two tests when using a Time to Pay Arrangement (TTP) - that the business keeps up to date with its obligations under the TTP and that it also meets its ongoing liabilities to HMRC as and when they fall due. If either of these tests is not met at any time, the TTP fails and HMRC reserves the right to take further action.
One of the common themes, when we see businesses needing to seek advice on their cash position, is that they have been over-ambitious with their TTP when negotiating with HMRC – usually, they include what they think HMRC want to see, not what is actually achievable. Unfortunately, this often leads to the TTP failing, which in turn leads to a need to use a formal process to deal with the liability. Given these uncertain times, taking a step back and offering a plan which may be prudent at the outset, but which can be reviewed once trading returns, maybe a better option than trying to repay a significant liability in a limited time.
We have previously talked about the implications for directors concerning non-payment of tax however it does seem pertinent to highlight that HMRC now has the ability to make directors jointly and severally liable for tax where HMRC believes that there is a risk of insolvency. Should HMRC take the view that non-payment of PAYE due under the CJRS represents tax avoidance, then there will be scope for directors to become liable for this. Taking advice should be high on a director’s agenda where they have benefited from the CJRS grant but have PAYE and/or NIC liabilities arising from that grant.
The provisions may have been extended until 30th June 2021, but that does not mean that you should postpone seeking advice until then. Directors’ duties have remained in place throughout the pandemic and any director whose business is facing challenges should consider seeking advice as soon as they can.