Time to Pay - restrictions because of dividend remuneration policy
HMRC’s latest comment concerning ‘Time to Pay’ (TTP) arrangements has stated that TTP will not be available where companies are paying out dividends to their shareholders. It is HMRC’s opinion that the cash should be used to pay tax before paying dividends the company can not afford!
This will clearly hit hardest those companies where directors have chosen to receive remuneration on a dividend basis rather than by way of salary. The adoption of HMRC’s stance means that two businesses in a similar financial position will receive different levels of support simply because of the way in which their directors have chosen to be remunerated. One has to question the fairness of this approach from a commercial standpoint, although it is quite difficult to argue against the principle taken by HMRC of not paying dividends when a company cannot meet its operating costs.
Even for those companies who do not operate a dividend policy, there is still the hurdle of persuading HMRC that remuneration levels are not 'excessive'. HMRC, when considering TTP applications will consider whether the level of directors remuneration is appropriate given the financial difficulties of the company. If they are not satisfied then clearly TTP will not be granted.
It is clear that HMRC are slowly but surely restricting the circumstances in which they are prepared to provide assistance with TTP. It was never intended that HMRC should be a long term source of funding but simply provide financial support at a time when all else has failed. HMRC are likely to continue to apply more stringent tests and future applications will require careful consideration before presentation to HMRC.
Peter Godfrey-Evans is a Restructuring & Insolvency partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Peter you can call him on 01908 605552.
Date: 19th July, 2011
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