What happens if you cannot pay your self assessment tax bill?
The annual rush to submit your tax return is well underway; however the clock is also ticking to make arrangements to pay what you owe. The deadline for sending 2015/16 tax returns, and paying any tax owed from the previous year, is midnight on 31 January. This is also the deadline for paying half the balance of the current year’s tax bill if you have a ‘payment on account’. Failure to make payment on time will see you landed with a fine, and interest will then start to accrue on the missed payment.
Of course, it’s unlikely that you would intentionally set out to not pay your tax bill; there is usually a genuine reason behind the late or non-payment. So if you are struggling to get the money together before the rapidly-approaching deadline, here are a few things that may help:
- Explain the situation to HMRC - If you know that you simply do not have the money available to pay what you owe, then you should make it your priority to contact HMRC. Although it may seem a daunting conversation to have, as long as you are honest and upfront about your situation, you may be pleasantly surprised at the reaction you get. You may be able to negotiate a payment plan, giving you extra time to pay the amount due, and/or letting you spread the amount owed across a series of monthly instalments. HMRC is legally bound to consider any serious proposal you make, so it’s well worth a try. If you do manage to successfully negotiate a payment plan you need to stick to the terms of this rigidly as failure to keep on top of the payments will see HMRC taking further action against you. Therefore when you are proposing an arrangement ensure it is one you are realistically able to afford.
- Ensure your tax bill is as low as possible - With having to juggle the practical sides of running a business, along with the administrative elements, you may inadvertently miss out on valuable tax reliefs and allowances which could help reduce your tax bill by a considerable amount. Essentially you can offset the cost of running your business from your taxable profits. Allowable expenses include rent for business premises, travel and accommodation on business trips, employee’s salaries, and stationery.
- Do not bury your head in the sand – Having to pay taxes is often cited as one of only two certainties in life (along with death), and unfortunately running away from them is simply not an option. Employing avoidance tactics only serves to delay the inevitable, and will also end up costing you financially in the long-run as interest and penalties will start to mount up. Put simply, the longer you leave it, the worse it will get.
- Consider employing an accountant - Employing the services of an accountant to help with your future tax returns could prove to be a cost-effective strategy. Although you will have to pay for the accountant’s time and work, you may find they could actually save you more than the service costs you. By putting this important task in the hands of a professional, they should be able to make certain you are utilising every form of tax relief open to you and consequently lowering the extent of your liability. Furthermore a good accountant will be able to advise you on a rough amount of what you should set aside each month in order to cover your tax bill.
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