A great many people today are feeling the financial pressures of cost-of-living increases.
Additionally, for some, particularly those in the Locum GP sector, there’s simply not as much work available now as in previous years. Many are probably viewing their upcoming payment on account (due no later than 31 July 2024) with trepidation.
So what happens if you feel you can’t pay your Tax bill?
The answer, in part, depends on which payment (specifically) you’re unable to pay.
Late payments on account will attract interest which is charged daily, and is set at the base rate plus 2.5%. At the time of writing, HMRC’s late payment interest rate is 7.75%.
Any late balances of Tax due, which may include payments on account still not made by the following 31st January, will attract both late payment interest and penalties.
The longer the liabilities remain unpaid, the more interest and penalties will be charged, but you also run the risk of HMRC starting to chase you for payment.
While this chasing will begin with letters and reminders about payments owed, it can escalate to HMRC’s debt management team. At this point, HMRC’s may send their debt collectors out, they could make visits to your home to demand immediate payment, or bankruptcy may be on the table.
But the situation tends only to become this extreme when you neither engage with HMRC, nor make any attempts to reasonably settle what you owe.
While HMRC will take a firm stance about what’s owes to them, they are human. And, if you engage with them and openly tell them you are in financial difficulty and make efforts to come to an arrangement with them, they’re usually quite accommodating (within reason).
What should you do if you can’t pay?
DON’T AVOID THE PROBLEM.
You can ask for help from your Tax adviser. While they can’t pay your Tax for you, they can prepare your accounts and Tax Return early to see if there is any scope to legitimately reduce your payments on account, for example. This is especially relevant if your income has truly dropped within the tax year in question.
If there is no reduction to your Tax bill to be made, and you cannot make full payment of the Tax, what do you no next?
CONTACT HMRC, BE HONEST AND UPFRONT WITH THEM, AND NEGOTIATE A PAYMENT PLAN.
They may ask you some awkward questions like how much you have in savings, what your income and expenses are, and how much you can afford to pay. But when they are satisfied that you’re really doing all you can within a reasonable timeframe, they’ll usually come to some sort of agreement. After all, they want their Tax, and tax in smaller increments over a longer period of time is better than no Tax at all, in their opinion.
Interest will still run on any payment made later that the usual due date but amounts included under a payment plan won’t be charged to penalties. And most importantly, if you stick to the terms of the payment plan, it will keep the debt collectors off your back.
While your accountant can’t undertake final payment plan negotiations with HMRC for you, they can guide you through the process and help you prepare any financial information that HMRC may need (such as income and expenditure summaries).
If times are tough, remember that people can be more understanding that you think, which includes HMRC, as long as you keep communicating.
If you need further information and guidance regarding your tax payments, please contact our team of specialist medical accountants on 01424 730345 or email doctors@honeybarrett.co.uk and they will be happy to help.
