Purbeck Personal Guarantee Insurance warns HMRC Time to Pay arrangements are becoming a permanent feature of small business finances and outlines five practical steps to avoid escalating tax debt
Small businesses across the UK are being urged to contact HMRC before upcoming VAT and Corporation Tax deadlines, as many continue to struggle with pandemic-era borrowing, rising employment costs and slower summer cash flow.
Purbeck Personal Guarantee Insurance says it is seeing HMRC Time to Pay arrangements, originally designed as a short-term solution for businesses facing temporary financial pressure, becoming an increasingly permanent feature of small business cash flow management.
According to Purbeck, many SMEs are still repaying Bounce Back Loans (BBLs), Coronavirus Business Interruption Loans (CBILS) and other liabilities deferred during the COVID-19 pandemic. Combined with higher operating costs, including increases to employer National Insurance contributions, these legacy debts are leaving many businesses with little financial flexibility when major tax bills fall due.
Todd Davison, Managing Director of Purbeck Personal Guarantee Insurance said: “Many of the small businesses we speak to are still carrying debt burdens that date back to the pandemic. Bounce Back Loans, CBILS repayments and liabilities deferred under the COVID-era support measures didn’t disappear, but were simply pushed further down the road. Those commitments are now colliding with higher operating costs, leaving many businesses without enough headroom to absorb a significant VAT or Corporation Tax bill.”
He added that seasonal factors are adding further pressure on SMEs.
“Summer naturally slows cash flow. Finance teams, accountants and the people businesses rely on to approve and settle invoices are often on annual leave, so payments take longer to arrive. An invoice that would normally be paid within a week can easily take three. Businesses already managing HMRC Time to Pay instalments often don’t have that level of flexibility.”
While HMRC’s Time to Pay service remains an important lifeline for viable businesses facing temporary financial difficulty, Purbeck warns that relying on successive repayment plans can indicate deeper financial challenges.
Todd added: “Time to Pay is an invaluable facility, but when one instalment plan is followed by another, it’s often a sign that underlying cash flow pressures haven’t been resolved. Each new tax bill arrives before the previous one has been cleared.”
Five steps businesses can take to manage tax debt
Purbeck recommends that small businesses take the following actions before tax deadlines arrive:
- Speak to HMRC before the payment deadline. Businesses that engage with HMRC early are more likely to secure a Time to Pay arrangement and avoid additional penalties or enforcement action.
- Don’t allow Time to Pay to become a permanent funding strategy. Repeated repayment arrangements may indicate wider cash flow, pricing or debt management issues that should be reviewed with a professional adviser.
- Ring-fence tax liabilities throughout the year. Setting aside VAT receipts and Corporation Tax provisions in a separate account helps businesses treat tax as a planned operating cost rather than an unexpected expense.
- Review pandemic-era borrowing. Restructuring or refinancing legacy COVID borrowing may improve cash flow and create enough headroom to meet tax liabilities without resorting to expensive short-term borrowing. Where refinancing requires a personal guarantee, personal guarantee insurance can help protect directors’ personal assets while enabling businesses to access funding.
- Seek professional advice early. Tax debt is generally far easier to resolve before payment deadlines are missed or arrears begin to accumulate.
Todd Davison added: “The businesses most likely to navigate the current economic pressures successfully are those that treat tax as a planned, ring-fenced business cost while tackling legacy pandemic debt before it becomes a long-term constraint on growth.”