When you are unable to pay your tax bill on time
HMRC have released a policy paper recently around guidance for taxpayers who can not pay their tax bills.
From a summary level, if you can not pay your tax bill these are the steps you need to follow:
Before you contact HMRC
- the amount of the tax bill you’re finding it difficult to pay and the reasons why
- what you’ve done to try to get the money to pay the bill
- how much you can pay immediately and how long you may need to pay the rest
What happens when you contact HMRC
HM Revenue and Customs (HMRC) will ask you about:
- your income and expenditure
- your assets, like savings and investments
- what you’re doing to get your tax payments back in order
HMRC will decide whether you should be able to pay immediately. If you cannot, they’ll decide whether you’ll be able to get your payments back on track with more time.
You’ll be asked more in-depth questions if you’ve been given more time to pay before. In more complex cases HMRC may ask for evidence before they make a decision.
A lot of clients have assumed that because of Covid-19 HMRC are being sympathetic to those who have suffered adversely in this climate, on not paying their taxes. Indeed, HMRC is likely to take this view for tax debts that have arisen in the Corona virus period, ie from March 2020 onwards, however they are unlikely to take this view for tax debts that arose on earnings before Covid-19 because they expect that each business owner is saving for their tax liabilities from their monthly earnings (ie it’s put away as you earn that taxable income).
If you have personal savings available, HMRC is unlikely to give you a payment plan. They will ask quite a lot of detailed questions so make sure if you are arranging a Time to Pay plan, that you know your personal and business finance numbers before you call.
Ultimately if your income is going down at the moment, try first to look at your household expenses. Speak to your partner about whether they could contribute a bit more temporarily so you don’t have to get into debt with your company and your personal tax. When dividends drawn are to high, you risk having to go into the 32.5% tax bracket, so talk to your accountant about how much you can draw out of the company before going into this. If you are a sole trader, note that you can’t pay your 2019.20 tax bill on your personal credit card, you need to have the funds available to pay via bank transfer or debit card.
For those who are VAT registered and chose to not pay their Feb/March/April quarter bill, please don’t forget that needs to be paid back in full, by the 31 March 2021.
HMRC will look to support where they can especially if the strain on finances is expected to be temporary. The worst action you can take with tax debt is to ignore it. HMRC will not write it off, nor will they wipe interest or fines that have been accrued because you chose to not do anything about it. We can help so if you are struggling with paying your tax bill, please get in touch.