What If I Cannot Pay My Self Assessment Tax?
Self Assessment taxpayers get something of a raw deal in the UK. While PAYE taxpayers (who are the bulk of British employees) have their Income Tax and National Insurance Contributions deducted in small chunks over the course of the year, Self Assessment taxpayers generally have to pay their entire tax bill in one or two lump sums.
Although HM Revenue & Customs (HMRC) have developed a number of schemes to enable Self Assessment Taxpayers to spread out their payments, many taxpayers find it virtually impossible to meet the large payments required. Similarly, many taxpayers forget to factor in Class 4 NICs (which are payable by almost all self-employed people) and Student Loan repayments when budgeting for their tax bills.
A balancing payment is due on January 31 for the previous tax year. On this date you will also have to make the first ‘payment on account’ against your bill for the following year. If you miss this deadline, interest will start to accrue. So what should you do if you cannot pay your Self Assessment tax bill?
Preventative MeasuresOf course, the best way to avoid difficulties when it comes to making your balancing payment is to plan ahead. HMRC now offer a direct debit service allowing you to make regular payments against a future tax bill. If your income is basically the same from month to month, you can therefore calculate your monthly liability and pay in advance. If you work this out correctly, you might actually end up with no bill at the end of January.
This service is only available to those who are already up to date with their Self Assessment bill. So what should you do if you already owe the taxman money?
Payment ArrangementsIf you cannot pay the lump sum required by HMRC, you can ask for a new payment arrangement to be made. The taxman is obliged to consider any suggestion for an alternative arrangement.
You have a number of basic options. If you cannot pay right now, but promise to pay the full amount within 28 days, HMRC will not take any further action. It is important that you stick this promise, though; failure to do so may well result in legal action being taken against you.
You can also ask to pay in instalments. You should remember, though, that HMRC may ask for details of your financial arrangements if you ask to pay over a period of more than three months. They may ask to see evidence of your income and expenditure, as well as any savings that you have.
Making a ProposalA proposal for a new payment arrangement can be made at any time – even after you have received a letter warning about legal action. However, you should remember that interest and financial penalties will begin to accrue if you do not pay, and you can therefore end up with a significantly larger tax bill than you began with.
In order to make a proposal you should contact the Payment Helpline on 0845 900 0444. You will receive a call from HMRC if you ignore a bill or other correspondence.
Forward planning is the key to minimising the shock of a tax bill. So, wherever possible, try to set aside money in advance to avoid problems later on.