I Couldn't Pay My Self Assessment: A Case Study

For many taxpayers, the annual Self Assessment tax bill comes as something of a shock. Many people fall in and out of self-employment, or have self-employed earnings one year but not the next. In this way, it is not uncommon for Self Assessment taxpayers to be presented with a bill that they simply cannot pay.

Unpaid Bill

A looming tax bill is a stressful prospect. HM Revenue and Customs (HMRC) has become progressively more aggressive in its pursuit of unpaid tax and, eventually, legal proceedings will be brought against those who do not pay. We spoke to Mark, a Self Assessment taxpayer who experienced the difficulties that an unpaid bill can bring.

“I became self-employed for the first time two years ago,” Mark said. “I had spent most of my working life in IT, building up contacts, so I was lucky enough to do quite well for myself in my first year of self-employment.

“I was putting aside money each month, knowing that I would have to pay my tax in January. I got my Self Assessment in on time. But then I ended up with a bill that was much, much bigger than I expected.”

Payment on Account

Mark had enough money set aside to pay his balancing payment – that is, the outstanding tax due for the tax year just gone. What he had forgotten, though, was that he would also be required to make a payment on account.

“I basically hadn’t factored the payment on account into my budget. So I ended up with a tax bill that was 50% higher than I thought it was going to be.”

Sensibly, Mark contacted HMRC as soon as he realised his mistake. “I phoned the Tax Office, and explained the situation. They were actually remarkably helpful, although I’ve heard other people have had very unpleasant experiences with them. They told me that I would need to propose a payment settlement. So I went away and worked out how much I could afford to pay each month.

“I called them back, and offered to pay the balance over five months. They were reticent about the process taking this long initially, but over the course of the conversation they realised that was about as quickly as I could afford to do it.”

Paying the Bill

After five months, Mark had paid off his outstanding balance. But the problems weren’t over.

“By this time, my second payment on account was coming around, and because I’d been paying off the first, I hadn’t been putting aside enough money to pay the second. So, again, I ended up being a couple of months late with my second payment on account.

“It ended up being an expensive mistake. You get charged interest from day one, and then there are 5% penalties at certain points throughout the year. So I ended up paying several hundred pounds more than I originally owed.”

So, Does Mark Have Any Advice for New Self Assessment Taxpayers?

“Make sure that you understand the system. This is the only way that you can be sure that you pay on time. And, if you can’t afford to pay your bill, contact HMRC quickly. The longer you leave it, the more expensive it will get.”