HMRC Refused Time to Pay? What Company Directors Should Do Next

Yes.

A Time to Pay arrangement is not automatically available simply because a company cannot pay its tax bill in full.

HMRC assesses each request based on the company’s circumstances.

It will want to establish that the business genuinely needs additional time but is still capable of repaying the outstanding debt over a realistic period.

HMRC can reject a proposal where it believes:

• the company can afford to pay more;
• the proposed repayment period is too long;
• the business will struggle to meet future tax liabilities;
• the evidence supporting the proposal is insufficient;
• previous payment arrangements have not been maintained; or
• the underlying business may no longer be viable.

There is no single reason why HMRC rejects Time to Pay requests.

Understanding the reason is important because it determines whether a revised proposal is realistic.

The Proposed Payments Are Too Low

HMRC expects a company to offer what it can genuinely afford rather than simply choosing a comfortable monthly payment.

It may examine:

• available cash;
• income and expenditure;
• assets;
• debtor receipts;
• other sources of finance; and
• how quickly the debt could realistically be cleared.

If HMRC believes the company has greater ability to pay, it may reject a lower proposal.

The Repayment Period Is Too Long

HMRC expects Time to Pay arrangements to clear the debt as quickly as reasonably possible.

Business arrangements lasting more than 12 months are considered exceptional, although longer arrangements can be considered in appropriate circumstances.

A proposal asking for a lengthy repayment period without strong supporting evidence may therefore be rejected.

The Company Cannot Afford Future Tax Bills

This is one of the most important tests.

A Time to Pay arrangement should not simply move today’s tax problem into the future.

The business must normally be capable of making the agreed instalments and keeping new VAT, PAYE, Corporation Tax and other liabilities up to date.

If servicing the old debt means the next tax bill will also be missed, HMRC may conclude that the proposed arrangement is not sustainable.

HMRC Is Not Convinced the Business Is Viable

HMRC may want to understand why the company cannot pay and what will change during the proposed repayment period.

For example, there is a significant difference between:

“Sales should improve over the next few months”

and evidence showing confirmed contracts, reduced costs, expected debtor payments or another identifiable improvement in cash flow.

If there is no realistic explanation for how the company’s position will improve, HMRC may question whether Time to Pay is the right solution.

Previous Payment Problems

HMRC also considers previous compliance.

A company that has historically filed and paid on time may be viewed differently from one with repeated arrears or failed payment arrangements.

A previous Time to Pay arrangement does not automatically prevent another one being agreed, but HMRC is likely to examine closely:

• why another arrangement is needed;
• what has changed since the previous request;
• whether the previous agreement was maintained; and
• whether the company can return to normal tax compliance.

HMRC should explain why the proposal has been rejected.

If no payment arrangement is agreed, the tax remains due and HMRC can continue recovering the debt.

The next step depends on how far recovery action has already progressed.

HMRC may continue with measures including:

• further payment demands;
• debt collection activity;
• enforcement against company assets;
• other statutory recovery powers; or
• ultimately, where the relevant legal requirements are met, a winding-up petition.

A rejected Time to Pay application does not automatically mean that HMRC will immediately petition to wind up the company.

However, without an agreed repayment arrangement, directors should not assume enforcement has been paused.

Our guide to how HMRC debt collection works explains the wider recovery process.

A Time to Pay refusal should not be treated in the same way as a statutory appeal against a tax assessment or penalty.

The practical first step is to ask HMRC to explain why the proposal was rejected and establish whether those concerns can be addressed with a revised offer or additional evidence.

Separate appeal rights may exist if you dispute the underlying:

• tax assessment;
• penalty;
• surcharge; or
• another formal HMRC decision.

That is different from HMRC deciding whether it is prepared to allow additional time to pay an otherwise valid debt.

Sometimes rejection exposes a bigger problem.

If the company cannot afford to:

1. pay its normal operating costs;
2. make meaningful repayments towards existing HMRC arrears; and
3. keep future tax bills up to date,

then another repayment plan may simply delay the underlying financial problem.

Directors should assess whether the business is genuinely viable.

Warning signs can include:

• repeatedly using money set aside for VAT or PAYE to fund trading;
• falling behind with several HMRC liabilities;
• needing increasingly long repayment periods;
• missed supplier or finance payments;
• persistent overdraft pressure;
• previous failed Time to Pay arrangements; or
• no realistic forecast showing how arrears will be cleared.

At this point, the question may no longer be:

“How do we persuade HMRC to give us longer?”

It may instead be:

“Can this company realistically recover?”

The appropriate option depends on the company’s financial position.

Make a Revised Time to Pay Proposal

If the underlying business remains healthy and the rejection can genuinely be addressed, a revised proposal may still be worth discussing with HMRC.

Raise Finance or Release Available Funds

Where appropriate, the company may be able to improve the proposal through:

• collecting outstanding debts;
• reducing costs;
• introducing funding;
• refinancing; or
• realising non-essential assets.

Directors should be careful about taking on additional borrowing where the company already has serious solvency concerns.

Company Voluntary Arrangement

A CVA involving HMRC debt may be appropriate where the underlying company remains viable but cannot repay all its debts under their existing terms.

A CVA is a formal insolvency procedure and requires the necessary creditor approval.

Administration or Restructuring

Where a viable business requires more significant restructuring or protection from creditor action, Administration or another restructuring strategy may need to be considered.

Creditors’ Voluntary Liquidation

If the company has no realistic prospect of recovery, directors may need to consider a Creditors’ Voluntary Liquidation.

Liquidation formally closes an insolvent company and available assets are realised for creditors.

If the fundamental problem is that the company simply cannot repay HMRC in full, our guide explains when HMRC debt can be written off or dealt with through formal insolvency.

If HMRC has rejected your Time to Pay proposal:

1. Find out exactly why it was refused.
2. Review whether the company’s figures support a stronger revised proposal.
3. Check whether future taxes can genuinely be paid alongside any instalments.
4. Do not ignore existing HMRC enforcement correspondence.
5. Assess whether the company is still financially viable.
6. Take professional advice if the debt cannot realistically be repaid.

The earlier directors assess the underlying position, the more options are usually available.

A rejected Time to Pay request does not always mean that a company has to close.

But it is a strong reason to establish whether the business can realistically repay its HMRC liabilities and continue trading.

Business Helpline provides free, confidential and unbiased initial advice to UK limited company directors dealing with HMRC arrears and creditor pressure.

We can help you assess:

• whether a revised Time to Pay proposal may still be realistic;
• whether the company’s cash flow is sustainable;
• whether a CVA or restructuring could provide an alternative; or
• whether liquidation should now be considered.

Call our free 24-hour helpline on 0800 088 2142 or request a confidential call back.