Structure your finances for Time To Pay changes

Nick Haggitt

From this month HMRC is requiring all PAYE, NI and VAT payments are made upfront and on time by direct debit. Nick Haggitt explains the changes and how to manage them.

In the construction and infrastructure sector, suppliers and smaller businesses often face difficulties in meeting payment deadlines, as they are so often waiting to be paid by their main contractor for work completed. Many of these businesses have long been relying upon HMRC’s Time To Pay arrangements (TTP) to help manage their financial liabilities, but significant changes which came in to force in August are expected to impact those most in need of help.  

"With the infrastructure industries picking up, suppliers are experiencing a boom in demand for their services. In this strong position, small subcontractors should not be afraid to outline payment terms as a top level relationship requirement moving forward." 

As all business owners will know, there are certain compulsory payments the state requires on an annual, quarterly or monthly basis, in large sums, such as PAYE, National Insurance and VAT. The value of these payments can add up and leave businesses facing hefty bills on a regular basis, often at a time when they simply cannot afford such significant overheads. Where businesses may have fallen into arrears with these payments, HMRC may choose to grant a Time To Pay arrangement, offering manageable monthly instalments of the monies owed.

No more complacent payments

Amongst the many conditions of a TTP arrangement is the demand that all future liabilities are paid on time. However, in reality the scheme’s system unintentionally enabled businesses to miss or delay their payment deadlines with very little punishment, if at all. HMRC’s response to this flouting of the rules is to remove the unintended breathing room and, from 3rd August 2015, TTP arrangements are being collected by Direct Debit – taking the onus away from individual businesses to transfer the money, or send a cheque.

The switch over to Direct Debit leaves organisations that may already be struggling to manage their cashflow, with the requirement to have enough funds in their account on exactly the right day to deliver the payments required, or face further penalties from HMRC.

Practical solutions

The nature of TTP is to aid businesses that have a lumpy cashflow and help them to catch up on monies owed in a practical and sustainable way. So how can companies still reap the benefits of TTP, whilst complying with the new conditions? 

There are some simple steps that can be taken. It is important to make sure that any amount owed is received as quickly as possible, giving the money needed to pay overheads or even fund investment. Delivering the right product, at the right place, in the right quantity and the best quality will increase the chances of businesses being paid on time.

For more regular customers, businesses should familiarise themselves with their payment habits. Knowing who is reliable can make a realistic cashflow estimate easier to achieve. Avoiding any reason for clients to delay payment is key, so putting preventatives in place, such as thorough invoice checking and communication of credit terms, early in the relationship will help.

With the infrastructure industries picking up, suppliers are experiencing a boom in demand for their services. In this strong position, small subcontractors should not be afraid to outline payment terms as a top level relationship requirement moving forward. 

Business managers should revisit their attitude to borrowing.  A hangover that still exists from the financial crisis, which saw a rapid slow down in the construction industry  is a general distrust of borrowing on credit, but with interest rates remaining low for the foreseeable future, the economic climate is ideal for businesses to borrow. Bank loans are not the only source of funds; familiarisation of the full range of financial support available will help towards making an informed decision.

Individual and unique

Every business is unique, so why should financial advice be any different? With so much free and valuable advice available, it is important to take advantage of it - and now is the time to do this.

Although the changes to TTP may place additional pressures on some suppliers, it’s a sign that the Government now believes small and mid-sized companies are able to handle more rigour in their tax payments and repayments, which suggests confidence in the growing economy. SMEs should embrace this assurance and use these changes to take more control of their finances moving forward.

Nick Haggitt is director of IGF Invoice Finance