With the Self-Assessment deadline just over a week away, failing to pay your tax bill on time can quickly lead to penalties and interest charges.
Not having a clear financial plan in place will only put you more at risk for additional costs.
To protect your finances, you must act early and understand how to comply with HMRC’s requirements.
Why should you contact HMRC now?
If you know you cannot pay your tax bill on time, you must contact HMRC immediately and not wait until the deadline has passed.
HMRC is far more likely to support taxpayers who act early and explain their situation honestly.
Failure to do so can result in penalties or enforcement action, including the use of debt collection agencies or direct recovery of funds from your bank account or wages.
How can a Time to Pay arrangement help?
HMRC offers a Time to Pay (TTP) arrangement that allows you to pay any overdue tax bills in affordable monthly instalments.
However, to qualify for TTP, your tax return must already be filed.
A TTP arrangement is usually set up through your Government Gateway account if you owe £30,000 or less and have no other outstanding HMRC payment plans.
This must be done within 60 days of the payment deadline, although setting it up within 30 days can help you avoid late payment penalties.
If you have larger debts or your financial situation is more complicated, you will need to speak directly with HMRC.
Be prepared to explain:
- Why you can’t pay in full
- What you can pay immediately
- How long you need to clear the balance
- Details of your income and essential outgoings
What are the interest and penalty charges?
From the day after your tax bill is due, HMRC will charge a 7.75 per cent interest rate on late payments. This applies even if you have set up a TTP arrangement.
You will also face late payment penalties, which are applied separately at a rate of five per cent of the unpaid tax after 30 days, 6 months and 12 months.
HMRC will not apply the late payment penalties if you have agreed a clear TTP arrangement 30 days before the Self-Assessment deadline.
However, you are no longer eligible for this option and you must understand the ongoing deadlines and the further costs on your finances.
What must you prepare for the payment process?
When managing late payments for your tax bill, you must keep detailed records of all communication with HMRC.
This information may be crucial if issues later arise and should include dates or reference numbers and any correspondence.
You must also ensure that your tax return is filed on time, even if you cannot pay it.
Late filing penalties are separate and include:
- An initial £100 penalty
- Further penalties of £10 per day after three months have passed, up to a maximum of £900
- Further penalties of five per cent of the tax due or £300 (whichever is greater), after six months
- Another five per cent or £300 charge after 12 months has passed
How can you reduce the risk of future tax issues?
Many businesses are experiencing tighter cash flow this year, which can affect their ability to meet tax obligations.
However, each Self-Assessment season gives you a chance to improve your financial planning for next year.
Setting aside money regularly throughout the year can help you ensure that the funds are available when your next tax payment is due.
You must keep your financial records up to date regularly so you can monitor your tax position and estimate liabilities as the year progresses.
Reviewing your tax code can also help ensure you are paying the correct amount of tax and reduce the risk of issues arising later with HMRC that could delay any payments.
You may also wish to consider paying your tax in instalments and HMRC’s Budget Payment Plan allows you to make regular monthly payments towards your future tax bills.
How can we support you?
If you are struggling to pay your tax bill, you must seek financial support now to help limit any further interest or penalties.
We can help review your tax bill and set up a clear payment plan with HMRC on your behalf.
With early action and the right support, you can regain control of your finances and remain compliant with HMRC’s deadlines.
For expert financial advice and support, contact our team today.