What happens if you are in a situation where you cannot pay your tax bill to HMRC?
Do you have any alternatives? Or are you simply faced with no other options than to incur fines, penalties and also incurring what could be a potentially significant debt.
Now, this is a very stressful situation for many business owners and even a lot of individuals when they receive a tax bill which is simply not affordable for them or they are simply unable to make that payment to HMRC.
This is what we will be talking about in today’s article.
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Let’s start by considering some of the reasons why most people may fall into the situation where they are unable to pay their tax bill.
- Inaccurate Budgeting – most individuals will often not budget correctly for their tax bill. In most instances, where an individual has created a budget they have failed to budget the correct amount of funds to cover their tax bill at the end of the accounting period. The main suggestion would be to set aside at least 10-20% of your income to cover your tax bill. This could be higher depending on your business activities and how long you have been in business for.
- Payment on Account – another common reason, most individuals may be unable to pay their tax bill to HMRC is due to the fact they forget to factor in Payment on Account. Payment on Account are basically tax payments made in advance towards your tax bill for the following year. This is usually a payment that is made by those who file for self-assessment tax returns.
What exactly are your options should you find yourself in the situation where you are unable to pay your tax bill?
- Inform HMRC as soon as possible – it can be very tempting for most people to ignore any letters or correspondence that comes from HMRC, I would strongly urge that you do not do this. Instead, you should get in contact with HMRC as soon as possible regarding your outstanding tax bill. In most cases, HMRC are usually willing to work out a payment plan which enables you to pay off your tax bill via installments.
- Time To Pay Arrangement – The next option to consider is to get in touch with HMRC to set up a Time To Pay Arrangement as early as possible once your tax return is completed.
In order to qualify for the Time To Pay Arrangement, there are some criteria you would need to meet including;
- You should be able to pay the outstanding tax bill over the next 12 months.
- You should also have filed your tax returns consistently
Its important to bear in mind that when you do contact HMRC, you may be asked certain questions such as;
- What other debts do you have other than your outstanding tax bill?
- How likely is it that you will commit to the financial plan you’re looking to set up
- Do you have any other alternative forms of payment methods which can be used to pay off your tax bill.
A Time To Pay Arrangement usually works as a good option for most individuals to facilitate payment of your tax bill. Its important to note that you will end up paying more, this is because interest is added to the outstanding tax bill.
Voluntary Liquidation
In a rare situation, where you are unable to make any payment at all. Voluntary Liquidation is an option.
This means that all debts including those owed to HMRC will be written off by yourself or your company would be written off.
This isn’t a popular option taken by most individuals and depends on your individual circumstances.
I would definitely stress that you seek professional accountancy advice to discuss on what the best option is for you.
We are always happy to assist you with professional guidance and expertise, simply book a call for assistance.
