Avoid having to defer tax debts by using a CVA

Avoid having to defer tax debts by using a Company Voluntary Arrangement (CVA)

Many companies have delayed paying VAT and tax debts by using the government “Time to Pay” scheme. However, using a company voluntary arrangement could have allowed them to reduce their payments and write off some of their debt all together.

HM Revenue and Customs launched its business payment support service or “Time to Pay” scheme in November 2008.

The aim was to help businesses struggling with short term cash problems by allowing them to defer Tax and VAT payments for between 3-6 months.

Since its launch, many businesses have taken advantage of the time to pay scheme.

However, if a company has more fundamental cash flow problems, the issue with the scheme is that it simply delays the date when payment has to be made. If the cash is not available even after this period of grace, it is likely that HM Revenue and Customs will have to force the closure of the business.

Alternative company debt solution

Rather than simply delaying the payment of outstanding debt, it is far better to implement a solution which will immediately reduce the monthly payments the business has to make and allows a significant portion of the debt to be written off.

This can be achieved by using a company voluntary arrangement (CVA).

A CVA combines all of a company’s debt including any Tax or VAT owed to HM Revenue and Customs and allows it to be paid with a single manageable monthly repayment based on what the business can afford.

The arrangement will last for up to five years after which any outstanding debt is written off.

In this way, by using a CVA, a business can get a debt problem under control and immediately release cash which would otherwise have been swallowed up by creditors.

Barriers to HMRC scheme

Recent reports have suggested that it is becoming more difficult for companies to take advantage of the Time to Pay scheme.

In addition, any business owing more than £1m in Tax and VAT will now require an independent business review before any deferment in tax payments are granted.

This tightening of policy is not surprising given the measures which the new government is now going to have to take to reduce the amount of public borrowing. These measures will include cost cutting and a tightening of policy to ensure that any taxes due are collected on time.

Given this situation, companies which are still struggling to recover from the recession should not rely on deferred payment schemes to resolve their problems.

If your business has debts which it is unable to pay it is far better to enter into an arrangement such as a CVA which will reduce debt payments to a manageable amount and often allow 50% or more of the debt to be written off.

This will protect the company from being forced to close by its creditors and give it the best possible foundation for trading into the future, growth and maintaining jobs.