What to do if you can’t afford tax due in the u.k.

If a taxpayer finds themselves in financial difficulties which result in an inability to pay off their tax bill on time or in full, firstly, they should always ensure that they submit their tax return before the deadline of 31 January. Late filing will result in a penalty of £100 if the tax return is up to 3 months late. There are additional penalties if the tax return is filed later than 3 months. Also, a taxpayer will be charged an interest on late payments. Therefore, an early submission can significantly reduce the total tax bill owed to HMRC. Furthermore, this provides additional time to properly plan future payments of the tax liability. 


HMRC help and support

HMRC can offer help if a taxpayer finds themselves unable to afford paying their tax bill. The help HMRC provides will depend on each taxpayer’s needs and circumstances and they should always contact HMRC as soon as possible to discuss the best way forward. As interest is charged on any overdue payments it is always best to avoid delay.

HMRC can offer different tools to help and support the client via:

  • Offering a payment plan based on client’s financial position called a Time to Pay Arrangements.

  • Using any overpaid tax to clear other outstanding tax debts a client has.

  • Tax code adjustments to collect outstanding tax debts through PAYE income.

However, if a client does not engage with HMRC or refuses to pay their tax, HMRC can either visit them at home to understand the circumstances and financial situation to work out the arrangement to pay the tax or use their debt collection agencies to settle the tax debt. 

Time to Pay Arrangements

Time to Pay Arrangements are affordable monthly payment options for clients who find it difficult to make tax payments. The payment arrangements are based on the specific financial circumstances of the client according to how much they can afford and how much time they will need. The arrangement is flexible and can be amended over time depending on the financial situation of the client (it can be extended or shortened). 

The payment plan can be set up online or by a contacting HMRC.

A client can set up a payment plan online if:

  • They owe £30,000 or less.

  • They do not have any other payment plans or debts with HMRC.

  • Their tax returns are up to date.

  • It is less than 60 days after the payment deadline.

Interest will be charged on these payment plans.

Reducing payments on account

One of the ways to reduce the tax bill is to lower payments on account. If a taxpayer expects their earnings are going to be lower than during the previous fiscal year, they can claim to reduce their payments on account. There are two payments in total - the first payment on account is due by 31 January and the second payment on account is due by 31 July. Each payment is half of client’s previous fiscal year’s tax liability. However, to avoid an interest charge by HMRC, a client should keep their earnings under review. If the actual level of income changes, adjustment to the second payment on account can be implemented.

Suspension of tax collection

In certain situations, HMRC can temporarily suspend customer’s tax collection. However, such action will result in additional costs in the form of interest charged.

Summary

Firstly, a client should always file their tax return on time, even if they know they will have difficulties to pay their bill. Failing to submit the tax return on time will result in addition costs in the form of penalties.

If a client knows that they will be unable to pay their tax bill they should contact HMRC as soon as possible. It is always beneficial to deal with these issues as early as possible so that plans can be put in place to pay the tax and that interest and penalties can be minimised. Failure to be proactive when dealing with HMRC can result in enforcement powers being implemented to recover the debt.

Struggling to pay your tax?

If you are struggling to pay your tax it is vital that you contact HMRC at the earliest possible date. If you find yourself in this situation, you can also consult a professional tax advisor on the matter.

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