A profitable business can still experience difficulty paying its tax bills.
VAT, PAYE, Corporation Tax and Self-Assessment payments can create significant demands on cash reserves, particularly where trading conditions have become more difficult or customers are taking longer to pay.
Recent reports of increasing use of HMRC's Time to Pay arrangements are a reminder that many businesses are experiencing these pressures.
The important point is to deal with the problem early.
Do not simply miss the payment
If you know that you will not have sufficient funds to meet an approaching tax payment, ignoring the deadline is rarely the best course of action.
HMRC may charge interest and, depending on the tax concerned and the circumstances, late payment penalties can also arise. Continued non-payment can eventually lead to debt collection action.
It is usually much easier to discuss the problem with HMRC before matters reach that stage.
Could Time to Pay help?
HMRC may agree a Time to Pay arrangement that allows a tax debt to be settled by instalments.
Whether an arrangement will be available, and the period over which the debt can be repaid, will depend on the circumstances. HMRC will normally want to understand why the tax cannot be paid on time, what the taxpayer can afford and whether future tax liabilities will also be paid as they fall due.
Some taxpayers may be able to set up an arrangement online, while others will need to contact HMRC.
Time to Pay does not make the tax liability disappear, and interest will normally continue to be charged. It can, however, provide valuable breathing space.
Look beyond the immediate tax bill
Needing a payment arrangement may also be an early warning that something else needs attention.
Perhaps customers are taking too long to pay. Prices may not have kept pace with costs. The owner could be drawing more money from the business than its cash flow can comfortably support, or an apparently profitable business may be carrying too much stock or repaying excessive borrowing.
Simply arranging extra time to pay HMRC will not solve these underlying problems.