Can’t Pay Your Tax?
Business owners not being able to pay their tax is an all too often occurrence, but hey, it may not be as disastrous as you think.
The worst thing you can do in these circumstances is to do nothing, which will cost you plenty because not only will the HMRC charge you interest and hefty penalties as well, which over a longer period can substantially increase the amount you owe.
So, what can you do if you can’t pay your tax?
Temporary Bank Facilities
This needs a good track record, sufficient security to secure the borrowings and good systems i.e. to be able to supply up-to-date forecasts. This works best if you already have a borrowing facility with everything already in place.
However, this strategy has a high failure rate because bank managers are not usually impressed by urgent last-minute requests for finance, which normally indicates a lack of planning and forethought!
Arrangements with HMRC
If the arrangements will be for 12 months or less HMRC will generally agree arrangements to pay in instalments unless you have a very bad track record of tax paid late or failing to adhere to previous arrangements.
Yes, HMRC will still charge you late payment interest but this isn’t too bad. The downside is that you still have to pay current tax bills AND it won’t be long until the next tax payment date comes around so that it all concertinas together before you’ve paid off the instalments for the previous tax bill.
If the amount you owe to the HMRC has grown to a level that is out of control, it is sometimes possible to get the HMRC to write the tax off as uncollectible. The tax is not permanently written off, but you will not receive further demands unless your circumstances improve unexpectedly. Remission is most common in the case of a person who is elderly, sick or long-term unemployed, and has no assets and lives in rented accommodation.
It’s not easy to get the HMRC interested and it’s a long process with no guarantee of a successful outcome, but if successful it sure beats bankruptcy and paying off the tax for the rest of your life!
Beyond these four areas, if not being able to pay your tax is becoming a regular event, obviously your business has some problems, whether excess drawings, no budgeting, or no tax planning or not saving sensibly for the tax.
Often the problem is not an unwillingness to pay, it’s the fact that the tax wasn’t anticipated or that nothing has been saved towards it. This could mean you don’t listen to your accountant or perhaps you need a new one!
If you struggle to pay your tax, seek advice, there may be a solution, we are more than happy to discuss your options with you, and share our expert knowledge.