What to do if you can’t pay your Self-Assessment tax bill on time?
The deadline for your Self-Assessment tax bill is just over a week away and you may find yourself under increasing pressure if you cannot pay it.
While this situation can be overwhelming, ignoring the problem will only make it worse.
Late payments will cause penalties and interest charges and you must understand how to prepare a clear payment plan that is compliant with HMRC’s requirements.
Why do you need to contact HMRC?
If you know you won’t be able to pay your tax bill on time, you must contact HMRC immediately.
Do not wait until the deadline has passed, as HMRC is far more likely to support taxpayers who act early and explain their situation honestly.
Failing to contact HMRC can result in penalties or enforcement action, including the use of debt collection agencies or direct recovery of funds from your bank account or wages.
How to set up a Time to Pay arrangement?
HMRC offers a Time to Pay (TTP) arrangement that allows you to pay any overdue tax bills in affordable monthly instalments.
This is set up to help individuals and businesses avoid penalties and spread the costs over a realistic time period.
However, to qualify for TTP, your tax return must already be filed.
If you owe £30,000 or less and have no other outstanding HMRC payment plans, you can usually set up a TTP arrangement through your Government Gateway account.
This must be done within 60 days of the payment deadline, although setting it up within 30 days can help you avoid late payment penalties.
If you have larger debts, you will need to speak directly with HMRC.
Be prepared to explain:
- Why you can’t pay in full
- What you can pay immediately
- How long you need to clear the balance
- Details of your income and essential outgoings
What are the interest and penalty charges?
Even with a TTP arrangement, HMRC will charge 7.75 per cent interest rate on late payments and this starts from the day after the tax was due.
Late payment penalties are applied separately at a rate of five per cent of the unpaid tax after 30 days, 6 months and 12 months.
HMRC will not apply the late payment penalties if you have agreed a clear TTP arrangement 30 days before the Self-Assessment deadline.
However, you have now run out of time for this option and you must be aware of the ongoing charges on your finances.
What must you prepare for late repayments?
You must keep detailed records of all communication with HMRC when dealing with late payments for your tax bill.
This can be vital if issues later arise and should include dates or reference numbers and any correspondence.
It is also important to remember that you must still file your tax return on time, even if you cannot pay it.
Late filing penalties are separate and include:
- An initial £100 penalty
- Further penalties of £10 per day after three months have passed, reaching up to a maximum of £900
- Further penalties of 5 per cent of the tax due or £300 (whichever is greater), after six months
- Another five per cent or £300 charge after 12 months has passed
How can you plan for future tax bills?
Many businesses are struggling with their cash flow being tighter than expected and this can have a knock-on effect on being able to afford their tax bill.
However, you must learn from this Self-Assessment season and know how to better prepare your finances for next year.
Setting aside money regularly throughout the year can help you ensure that the funds are available when your next tax payment is due.
You must keep your financial records up to date regularly so you can estimate your tax liability as the year progresses.
Reviewing your tax code can also help ensure you are paying the correct amount of tax and reduce the risk of issues arising later with HMRC that could delay any payments.
You may also wish to consider paying your tax in instalments and HMRC’s Budget Payment Plan allows you to make regular monthly payments towards your future tax bills.
How can we support you?
If you are struggling to pay your tax bill, you must seek financial support now to help reduce any further interest or penalties.
We can help review your tax bill and set up a clear payment plan with HMRC on your behalf.
With early planning and the right support, you can regain control of your finances and remain compliant with HMRC’s deadlines.
For expert financial advice and support, contact our team today.
