A leading UK accounting firm has warned companies using dividends as a form of remuneration that their Time to Pay applications may be rejected by HMRC.
Time to Pay (TTP) arrangements allow companies to defer the money owed to HMRC to aid their cash flow situation. HMRC has historically agreed to around 95% of applications and turns down first time applicants on a rare basis. However, according to Mitchell Charlesworth managing partner David Darlington, the attitude of HMRC has been hardening since Christmas and he understands this tougher line is part of a new policy. A HMRC spokesman has confirmed: “Where a company asks us for a TTP arrangement and we have information or see that they recently paid out a dividend while they were running up a tax debt, we would refuse a TTP on the grounds that they have preferred to use the money elsewhere and the shareholders should support their company. It is a routine question our staff ask to establish that we are not being used to fund other creditors. “In essence, if a company has spare cash to make non-contractual payments to shareholders, then it can pay at least part of its debts.” Darlington urged worried owner managers to seek professional finance advice to ensure their business finances are prepared for the new policy. “This new hard line is no surprise,” he said. “We have seen a distinct change in attitude in HMRC since December on TTP. Before Christmas HMRC was flexible and relaxed on TTP which was incredibly helpful for many firms. However, this year has seen a less sympathetic less flexible approach and, as we can see from this new policy, it is not sabre rattling. HMRC will start coming down harder and refuse applications. “The key advice, as always, is to see a professional financial adviser who has a real feel for enterprise and small business. They can then take proactive approach to managing your cash acting like a virtual finance director ensuring you are properly prepared for these and other changes at HMRC.”