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D6: Time to pay agreements

Direct tax: managed payment plans

 

"(1)     This section applies if a person (“P”) has entered into a managed payment plan in respect of—

(a)     an amount on account of income tax which is to become payable in accordance with section 59A(2),

(b)     an amount of income tax or capital gains tax which is to become payable in accordance with section 59B, or

(c)     an amount of corporation tax which is to become payable in accordance with section 59D.

 

(2)     P enters into a managed payment plan in respect of an amount if—

(a)     P agrees to pay, and an officer of Revenue and Customs agrees to accept payment of, the amount by way of instalments,

(b)     the instalments to be paid before the due date are balanced by the instalments to be paid after it (see section 59H), and

(c)     the agreement meets such other requirements as may be specified in regulations made by the Commissioners for Her Majesty's Revenue and Customs." (TMA 1970, s.59G(1) - (2))

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"(9)     In this section “the due date”, in relation to an amount mentioned in subsection (1), means the date on which it becomes payable." (TMA 1970, s.59G(9))

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Balanced instalments: time value paid before due date equal to time value paid after

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"(1)     Subsection (2) applies for the purposes of section 59G(2)(b).

 

(2)     The instalments to be paid before the due date are balanced by those to be paid after it if the time value of the instalments to be paid before that date is equal, or approximately equal, to the time value of the instalments to be paid after it.

 

(3)     The time value of the instalments to be paid before the due date is the total of the time value of each of the instalments to be paid before that date (and the time value of the instalments to be paid after that date is to be read accordingly).

 

(4)     The time value of an instalment is—

A × T

where—

A is the amount of the instalment, and

T is the number of days before, or after, the due date that the instalment is to be paid." (TMA 1970, s.59G(1) - (4))

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No default to the extent that T keeps to the payment plan

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"(4)     If P pays all of the instalments in accordance with the plan, P is to be treated as having paid, on the due date, the total of those instalments.

(5)     If P—

(a)     pays one or more instalments in accordance with the plan, but

(b)     fails to pay one or more later instalments in accordance with it,

P is to be treated as having paid, on the due date, the total of the instalments paid before the failure (but this is subject to subsection (6))." (TMA 1970, s.59G(4) - (5))

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Entitlement to interest if default occurs before normal due date

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"(6)     If—

(a)     subsection (5) applies in a case in which the first failure to pay an instalment occurs before the due date, and

(b)     P would (in the absence of a managed payment plan) be entitled to be paid interest on any amount paid before that date,

then, despite that subsection, P is entitled to be paid that interest." (TMA 1970, s.59G(6))

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HMRC excuse default

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"(7)     If—

(a)     subsection (5) applies,

(b)     P makes one or more payments after the due date (whether or not in accordance with the plan), and

(c)     an officer of Revenue and Customs gives P a notice specifying any or all of those payments,

P is not liable to a penalty or surcharge for failing to pay the amount of the specified payments on or before the due date." (TMA 1970, s.59G(7))

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Does not apply if there is a corporate group payment agreement

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"(3)     But this section does not apply, in the case of an amount of corporation tax, if an arrangement under section 59F has been made in relation to the amount." (TMA 1970, s.59G(3))

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Direct tax: managed payment plans

Agreements with HMRC

 

"The principles of Time To Pay (TTP) are the same for all cases but we tailor our approach based on the risk associated with each TTP request.
There are three basic criteria which are used to determine how risky a TTP request is. These are:
(1) the amount of money involved
(2) the timescale requested
(3) the previous compliance of the customer." (DMBM800530)
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"HMRC is bound by the terms of arrangements that we enter into. However, we are entitled to withdraw and cancel any arrangement if:
new facts come to light that don’t support the Time To Pay (TTP)
the customer has misled us or has been untruthful
the customer defaults on the arrangement
the customer does not adhere to any of the conditions of the arrangement
any other factors come to light where it becomes apparent that tax is at risk
a customer makes a claim for Universal Credit (in this case, any existing Tax Credit TTPs will be cancelled and all tax credits debt for each customer will be transferred to the DWP including any debt remaining from a cancelled TTP); the DWP will advise of the rate of recovery and any discussions on this will need to be had with them.
Prior to cancelling a TTP arrangement we must issue a reminder letter to the customer to advise them that they have defaulted on their arrangement and give them an opportunity to bring it up-to-date." (DMBM804200)

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Query whether they are contracts supported by consideration

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"[18] The only consideration which MWB can be said to have been given for accepting a less advantageous schedule of payments was (i) the prospect that the payments were more likely to be made if they were loaded onto the back end of the contract term, and (ii) the fact that MWB would be less likely to have the premises left vacant on its hands while it sought a new licensee. These were both expectations of practical value, but neither was a contractual entitlement. In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1, the Court of Appeal held that an expectation of commercial advantage was good consideration. The problem about this was that practical expectation of benefit was the very thing which the House of Lords held not to be adequate consideration in Foakes v Beer (1884) 9 App Cas 605: see in particular p 622 per Lord Blackburn. There are arguable points of distinction, although the arguments are somewhat forced. A differently constituted Court of Appeal made these points in In re Selectmove Ltd [1995] 1 WLR 474, and declined to follow Williams v Roffey. The reality is that any decision on this point is likely to involve a re-examination of the decision in Foakes v Beer. It is probably ripe for re-examination. But if it is to be overruled or its effect substantially modified, it should be before an enlarged panel of the court and in a case where the decision would be more than obiter dictum." (Rock Advertising Limited v. MWB Business Exchange Centres Limited [2018] UKSC 24)

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"There are two elements to the consideration which the Company claims was provided by it to the Revenue. One is the promise to pay off its existing liability by instalments from 1 February 1992. The other is the promise to pay future PAYE and NIC as they fell due. Mr. Nugee suggested that implicit in the latter was the promise to continue trading. But that cannot be spelt out of Mr. ffooks' evidence as to what he agreed with Mr. Polland. Accordingly the second element is no more than a promise to pay that which it was bound to pay under the fiscal legislation at the date at which it was bound to make such payment. If the first element is not good consideration, I do not see why the second element should be either." (Re Selectmove Limited [1993] EWCA Civ 8)

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Agreements with HMRC

Direct debit mandatory for time to pay arrangement​

 

"As you may know we can use discretionary powers to agree to payment of a debt by instalments after the due date, where the customer is genuinely unable to pay by the due date and is able to commit to agreed payments to bring their tax up to date.
Direct Debit has always been our preferred method of payment for any regular time to pay arrangement, however from 3 August 2015 payment by direct debit will be mandatory.
We are moving to direct debit by default because:
- It is more cost effective and more secure than other payment methods
- It removes the chance that the customer will forget to make payment
- Payments are more likely to be correctly allocated
- Reduces the need for subsequent customer contact, saving time for the customer and HMRC
- Direct Debit scheme includes a guarantee to protect the customer
We recognise that there will be exceptional circumstances where a customer is unable to set up a direct debit, perhaps because their bank account will not allow it. In such cases payment by other methods may be agreed." (HMRC update, 14 July 2015)

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Direct debit mandatory for time to pay arrangement​

- Initiative lies with HMRC to apply for payment under direct debit

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"[42] The essential distinction with a direct debit arrangement is that the initiative lies with HMRC to apply for the payment, while with other methods of payment, the taxpayer has to take the initiative to process a payment. If a direct debit payment facility is in place to meet the VAT liability every quarter, HMRC cannot apply for a direct debit payment until the related VAT return is submitted to notify the correct amount to be requested for payment. This means a direct debit payment is normally applied for on the seventh in the month of payment, and will normally take three working days to process, to reach HMRC’s account on the tenth of the month.  A VAT payment by direct debit is therefore allowed three extra working days for the purpose of reckoning the due date of payment." (Eurovision Logistics Ltd v. HMRC [2016] UKFTT 773 (TC), Judge Poon)

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- Initiative lies with HMRC to apply for payment under direct debit
May operate retrospectively

May operate retrospectively

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“The heading refers to the “agreement for deferred payment” and, following s 108(1)(c), that must be the period for which deferral has been agreed.  Since TTP agreements defer a person’s obligation to pay a sum which is either about to become due, or has become due, the deferral period begins from the due date for that payment.  A TTP agreement is therefore either prospectively effective (if made before the due date), or retrospectively effective (if made after the due date).  In either case, the “currency of the agreement” runs from the due date for payment of the VAT, because the agreement to defer payment is effective from that date…As a matter of general law, there is nothing odd or unusual about an agreement being effective from an earlier date.  For example, in Northern & Shell plc v John Laing Construction [2003] EWCA Civ 1035, Nelson J, giving the leading judgment with which Hale LJJ and Judge LJJ both concurred, said at [51] “Whether or not a clause in a contract is capable of having a retrospective effect, depends upon the express or implied intention of the parties.”” (BW Hills Southbank Ltd v. HMRC [2016] UKFTT 432 (TC), §§73…74)
 

No penalty if request made before due date, irrespective of when HMRC accept

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“The statutory wording is clear. In particular it does not say that TTP arrangement must have been agreed by HMRC before the due date, but only that the request must have been made by that date.  This cannot have been accidental.  It would have been a simple matter to start the suspension period from the date HMRC agreed the TTP.  But that would mean, for example, that an administrative delay by HMRC (over which the trader had no control) would prevent the section from applying.  HMRC might need to make some internal checks before deciding whether to make the TTP agreement.  Or, as here, HMRC could change its mind and come to a different decision on the same facts.” (BW Hills Southbank Ltd v. HMRC [2016] UKFTT 432 (TC), §57)

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No penalty if request made before due date, irrespective of when HMRC accept
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