What to do if you can’t afford to pay your tax bill

04/01/2018

The deadline for individuals and the self-employed to file their tax return and pay their tax bill is fast approaching. But, what should you do if you can’t afford to pay HM Revenue & Customs (HMRC) what you owe?

All 2016-17 tax returns must be filed and any tax owed must be paid by midnight on 31st January 2018.

In the last tax year, 840,000 people missed the January deadline incurring additional charges.

If you think that you won’t be able to pay your tax on time here’s what you should do:

1. File on time

Submitting and paying your tax return late will incur additional penalties and interest which could make paying your bill even more challenging.

So, complete your self-assessment form as soon as possible. This will tell you exactly what you owe and allow you to plan how you will pay accordingly.

If you’re late with your tax return, you face an immediate £100 fine. If you submit any later, you could be hit with increasing levels of penalties, as shown below: 

• Up to 3 months late: £10 for each additional day (capped at 90 days), on top of £100 initial fine – maximum of £1,000
• 6 months late: Either £300 or 5% of the tax due (whichever is higher), on top of the penalties above
• 12 months late: An additional £300 fine, or 5% of the tax due, on top of above penalties. In the most serious cases, you may be fined 100% of the tax due – doubling your bill

If you usually pay your tax by personal credit card in order to spread the cost of a large bill you will no longer be able to do this from 13th January 2018.

From this date, personal credit card payments will be banned in response to new rules that mean HMRC will no longer be able to pass on the bank charges for processing credit card payments.

Debit cards and corporate credit cards will continue to be accepted.

This provides those who usually pay in this way an added incentive to submit their form and pay their bill early.

2. Talk to HMRC

As soon as it becomes apparent that you will not be able to pay your tax on time it is vital to contact HMRC, ideally before the deadline date so that you can then negotiate with them early.

When you contact HMRC they will ask you about your income and expenditure, your assets and what you’re doing to get your tax payments back in order.

Using this information they will decide whether you should be able to pay. If HMRC think you can pay the outstanding amount you’ll have to do this immediately when you call.

If they think you genuinely can’t pay in full now but will be able to pay in the future, HMRC may offer you extra time to pay or a payment plan so that you can spread the payments and get yourself back up to date.

Remember that any tax paid late will attract interest, so an instalment option may cost more in the long run.

If HMRC don’t think you can get your payments on track with more time, they won’t make an arrangement with you – they’ll expect you to pay your tax bill straight away. If you don’t, HMRC will start ‘enforcement action’ to get the money from you.

3. Get specialist debt collection help

There are a number of reasons why the self-employed – and businesses in general – struggle to meet their tax commitments. But, with late payment one of the biggest burdens on small businesses’ cash flows, we know that this is often a contributing factor to missed tax payments.

If you have any outstanding debts on your sales ledger that are preventing you from meeting your tax commitments you could benefit from the help of a specialist debt collection agency.

By outsourcing overdue invoices to a collections agency they will assume the responsibility for recovering the unpaid invoice, removing the burden from your business.

And, with extensive experience in recovering aged debts they will use their expertise to bring the desired results in the quickest time possible.

If you need help recovering money from your customers to pay your tax bill we can help. Call us today on 0800 9774848.

More information about submitting tax returns can be found at https://www.gov.uk/self-assessment-tax-returns.