An article from Accountancy Age (here) sets out a new criteria being applied by HM Revenue & Customs for accepting Time To Pay ("TTP") agreements.
Basically, HMRC are saying that if owner/director/shareholders are extracting their remuneration from their company in the form of dividends (which is arguably the most tax-efficient way for an individual) then they will not agree a TTP for the company. I'm not pro- (or anti-) HMRC but this seems perfectly sensible to me.
There is a legal requirement under the Companies Act 2006 that dividends can only be paid from distributable profits. Whilst "profits" doesn't always equal "solvent", it is common sense that profits should only be taken if provision has been made to pay a company's future liabilities, which, like it or not, includes amounts due to HMRC. If a company is insolvent (i.e. can't pay its debts as and when they fall due, which is the case if a TTP is on the table) then any "dividends" paid to shareholders are likey to be clawed back by a Liquidator as a preference to the receiving director/shareholder.
If a trade supplier was told they couldn't be paid because the profits had been taken out of the company via dividends for the director/shareholders, then kneecaps would be at risk. Why then should HMRC not enjoy being paid from the profits when everyone else is?
In my view, if remuneration is extracted via a PAYE salary, even though this "costs" more than simply taking out dividends due to the additional tax liability each month, then HMRC is more likely to view a TTP proposal in a better light as it will receive ongoing PAYE/NIC liabilities at the same time as TTP payments. A PAYE/NIC salary would also not be at risk of being clawed back in a liquidation as well!
Come on everybody - be sensible about how a company's liabilities are settled if it hits a rough spot. Better yet, get some advice from an Insolvency Practitioner on how to deal with financial difficulties!
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