Following the feedback we received from clients in the weeks leading up to the tax deadline on 31st January we thought we would let you know what your options are if you think you will struggle to pay your tax bill by the deadline.

We always advise our clients to set money aside each month in order to cover their tax bills. We understand that the unexpected does happen, but it’s really important to make sure you’re saving this money ready to pay HMRC. A contingency plan should be put in place. If you struggled to pay your tax bill by 31st January this year, have a conversation with your bookkeeper about what steps you can put in place to ensure you have the money to cover it next time. Remember, if you don’t pay your tax bill on time you will be charged interest for every day you don’t pay.

The moment you become aware that it’s likely you will not be able to pay your tax bill in full you must contact HMRC and make them aware. HMRC will then discuss your options with you based on your situation. They will put a plan of action in place for you and may suggest a ‘time to pay arrangement’.

It may be possible for you to arrange this online if;

• You have already submitted your latest tax return

• You owe less than £30,000

• Are within 60 days of the payment deadline

• Commit to pay your debt off within the next 12 months or before

If you don’t fall into this category then you must get in touch with HMRC by calling 0300 200 3822. Lines are open Monday- Friday 8am-4pm.

What will I need to use the ‘Time to pay arrangement’? 

• You will need your UTR code (Unique Tax Reference)

• Your VAT number if applicable

• Your bank details

• Details of any payments you have missed (if applicable)

What will HMRC ask me?

• How much you can afford to pay each month

• The reason you can’t pay the amount in full

• If there are any other outstanding tax bills you need to pay

• Your earnings

• Your outgoings

• What savings or investments you have

If you have savings HMRC will expect you to use these in order to settle your tax bill, the same also applies to any assets you may have.

How will HMRC decide what my payments will be?

HMRC will take into consideration your financial situation and will review your incomings and outgoings. They will expect you to pay at least half of what you have remaining each month. It’s important to note that this arrangement will incur interest so we advise paying it back as soon as possible. 

What if I already owe tax?

If you already owe tax to HMRC then you will need to speak to them. They will ask you to make a verbal proposal of how much you can afford to pay. You will also have to tell them how soon you expect to pay your debt off. Be prepared, they will ask you questions about your proposal in order to confirm if it’s realistic. 

Before HMRC allows you to enter into another payment arrangement they will expect you to reduce your debts as much as possible before entering into the agreement. You will be expected to use personal funds, extend existing credit or take out a loan in order to reduce your outstanding tax as much as possible. They will more than likely want you to reduce your tax bill by half before letting you enter into another payment agreement.

We cannot stress enough how important it is to save as much money as possible in order to cover your tax bill. That way you won’t have to pay penalty charges and interest. We strongly recommend filing your tax return as soon as possible so that you know how much you are expected to pay and work out how much money you need to put to one side. We can help to support you with this.

For further advice please contact HMRC.