Meeting Tax Obligations Without Liquidating Assets

Staring down an upcoming tax bill without sufficient cash flow can be a stressful experience for any business owner. If you have assets, you might consider selling them to pay your tax bill, either on your own or as part of an HMRC Time to Pay (TTP) arrangement. However, it’s important to think this through carefully. While selling assets can help cover your tax obligations right now, it might limit your ability to earn revenue and grow your business in the future.

In this article, we’ll examine the case for using assets to cover your tax bill, how these are treated in TTP arrangements and alternatives ways to fund your tax obligations.

Why sell assets to cover your tax bill?

When you’re facing a tax bill and don’t have enough cash on hand, selling assets can feel like a straightforward solution. It frees up money quickly, helping you meet your obligations and avoid action from HMRC. But before taking this route, it’s worth weighing the pros and cons and considering how it might affect your business in the long run.

The case for selling assets

• Unlocking tied-up capital: Assets like stock, equipment, or property can represent a significant amount of working capital that isn’t immediately accessible. Selling these assets can free up funds to pay your tax bill and reduce short-term financial pressures.
• Avoiding penalties: If you’re close to a payment deadline, selling assets could help you avoid late payment penalties and interest charges from HMRC, which would add to your debts.
• No debt involved: Selling assets doesn’t require borrowing, so you won’t need to worry about repaying a loan or paying interest in the future.

The risks of selling assets

• Impact on liquidity: Offloading assets can create liquidity pressures elsewhere in your business. For example, selling stock might leave you unable to fulfil orders, while selling equipment could slow down production.
• Future revenue challenges: Assets like vehicles, machinery, or inventory often play a direct role in generating revenue. Selling them to cover a tax bill might solve one problem now but create bigger challenges for your business later.
• Hidden costs: Selling assets in a hurry could mean accepting a lower price than they’re worth, especially if buyers know you’re under pressure to sell.

How do Time to Pay (TTP) Arrangements work?

A Time to Pay arrangement is an instalment plan offered by HMRC to help businesses and individuals who are struggling to pay their tax bills on time. The scheme aims to provide flexibility by allowing taxpayers to spread their payments over a defined period. The key features to understand include:

1. Eligibility: HMRC assesses your financial position to determine if you genuinely require support. This involves a detailed review of income, expenses, and assets​.
2. Customised terms: Payments are tailored to what you can afford, and the arrangement can be adjusted if your circumstances change.
3. Interest charges: While there are no upfront fees, interest is charged on the outstanding amount, currently at 7.25%​.
4. No debt reductions: It’s important to note that TTP doesn’t reduce your tax liability—it merely spreads the payments to ease cash flow pressures.

What happens to your assets with a TTP arrangement?

When negotiating a TTP agreement, HMRC considers your assets as part of their assessment of your ability to pay. They will expect you to release or liquidate assets where feasible to reduce your debt before approving an instalment plan.

For businesses this can mean:

• HMRC may expect you to sell stock, vehicles, or equipment to raise funds.
• Directors might be asked to inject personal funds or extend business credit lines​.

While liquidating assets can help secure a TTP, it may not always be the best choice in the long term.

The pros and cons of using TTP arrangements

TTP arrangements are designed to balance the interest of business owners and HMRC but, as in any business decision, there are trade-offs to consider.

Pros of TTP arrangements

1. Flexible payments: Instalments are based on what you can afford, reducing immediate cash flow pressures.
2. No direct impact on credit: Unlike loans, TTP arrangements don’t directly affect your credit score unless payments are missed.
3. No penalties: By setting up a TTP, you avoid late payment penalties and enforcement actions​.

Cons of TTP arrangements

1. Interest costs: The interest rate (7.25%) may be higher than alternative financing options.
2. Asset liquidation: HMRC may require you to sell assets, potentially limiting your future growth.
3. Strict compliance: Missing a payment or failing to meet terms can lead to enforcement actions, including asset seizure​.

Why consider financing for tax payments?

If liquidating assets feels like a step backward for your business, financing your tax bill with a small business loan can offer a more sustainable solution. Tax loans or VAT loans can quickly provide the capital you need to meet deadlines for HMRC, giving you more time to stabilise your cash flow without selling off essential resources.

Advantages of VAT or corporation tax loans

1. Preserve productivity: Keep essential assets like vehicles, stock, or equipment, allowing your business to operate without disruption.
2. Flexible interest rates: Some tax loans may offer rates lower than HMRC’s late payment interest, saving you money in the long run.
3. Adaptable to cash flow: Many lenders, including iwoca, allow early repayment with no fees, enabling you to reduce borrowing costs as soon as your finances improve​.

iwoca Flexi-Loans as an alternative to TTP

iwoca’s Flexi-Loan is built to fit the needs of businesses, giving you fast, simple financing with control and transparency. And with our unmatched flexibility, iwoca can offer a less restrictive alternative to a TTP arrangement.

• Control: Borrow only what you need, when you need it, and repay early with no fees.
• Speed: Funds can be in your account within 24 hours, perfect for urgent tax payments.
• Transparency: Interest is only charged on the funds you use, and there are no hidden fees​.
• Scalability: Need more funds later? Apply for a top-up as your business grows.

With iwoca, you retain control over your assets and borrowing, ensuring your business can continue running smoothly while meeting its tax obligations.

Comparing TTP and tax loans

Choosing the right option for your business

When deciding between a TTP arrangement and a tax loan, consider the following:

• Do you have assets you’re willing to sell? If not, a tax loan might be a better option.
• How quickly do you need funds? A Flexi-Loan offers faster access compared to TTP.
• What’s the cost of borrowing? Compare HMRC’s interest rate with tax loan rates to determine the most cost-effective choice.

Paying an unexpected tax bill doesn’t have to mean giving up your business’s future. While TTP arrangements can help spread costs, they come with significant limitations. A tax loan, like iwoca’s Flexi-Loan, provides a flexible, transparent alternative that keeps your business productive and ready for growth.

Find out how much you could borrow with our business loan calculator.