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What happens if you can’t pay your Self Assessment tax?

What happens if you can’t pay your Self Assessment tax
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    The mechanism used by HMRC (Her Majesty’s Revenue and Customs) for the collection of Income Tax is Self Assessment. Individuals with an income that isn’t subject to tax as part of the Pay As You Earn (PAYE) system, including earnings from an enterprise, must generally file a self-assessment tax return with HMRC.

    The deadline for filing the return and paying your income tax is 31 January, so if you fall within the definition of self-employed, you or your accountant must submit your tax return to HMRC and pay the tax due by that date.

    Despite the fact that most self-employed workers are familiar with this deadline, many people struggle to meet it. Christmas spending, unanticipated winter costs, and new school term expenses are just a few of the reasons why people can run out of money in January.

    HMRC isn’t always compassionate to small enterprises and the self-employed; if you file your tax return late and/or fail to pay the tax due in full, you could face penalties and demands as early as February.

    I can’t afford my Self Assessment tax bill

    Small enterprises and self-employed people can find it challenging to pay their Self Assessment Income Tax bill on time. In a perfect world, you’d set aside a portion of your income monthly to cover your tax debt, but reality gets in the way. Late payments from debtors, unforeseen expenses, obligations, and even illness can prevent you from putting money aside every month.

    As the due date for filing your Self Assessment tax return approaches, if it becomes clear that you will be unable to meet your tax liability with HMRC after trying all possible options for getting finance, you must notify them. This is preferable to exposing yourself to risks such as penalties, surcharges, and legal action.

    You first need to contact HMRC to give yourself some buffer time before the deadline. If you don’t notify HMRC you may face regulatory action, which could have a significant financial and legal impact on your business.

    If HMRC determines that you are unable to pay your Self Assessment tax bill but will be able to do so in the future, they may agree to a Time to Pay (TTP) Arrangement, which allows you to pay in instalments.

    Negotiating a Time to Pay (TTP) Arrangement

    To request a Time to Pay (TTP) Arrangement, contact HMRC’s Payment Support Service and have your ten-digit Unique Taxpayer Reference (UTR) or VAT Reference Number to hand.

    They’ll want to know why you’re struggling to pay your tax liability, how much you can pay right away, and how long you’ll need to pay the remainder. They will also ask for information regarding your revenue, expenses, assets, savings, and investments, which will help them make a more informed decision.

    If a TTP Arrangement is approved, HMRC will allow you to settle the payments in instalments over six to twelve months, as negotiated.

    If you’re facing financial challenges as a result of the coronavirus

    If you’re having trouble paying your tax bill or your firm is suffering the consequences of the coronavirus, you may call HMRC’s designated Covid-19 hotline for further details on what help and assistance may be available. 

    If you can’t pay your tax bill, here’s what you shouldn’t do

    Don’t go into debt to pay your tax obligation; it’s preferable to work out a repayment schedule with HMRC than to pay interest on loans or credit cards. Use caution if considering a payday loan, as you could suddenly find yourself in serious debt.

    If you’re already in debt and this tax bill sounds like the final nail in the coffin, don’t panic; there are numerous ways of working things out. If you’re genuinely worried about this bill and other obligations, there are several accountancy firms that can help you set up IVAs and other personal debt solutions to help you get out of debt.

    How far can HMRC go in terms of enforcing the law?

    To recover money from unpaid tax liability, HMRC could bring action against you.

    Here are some of the measures that HMRC can take:

    • If you have income subject to PAYE, HMRC can amend your tax code to take money from source to reclaim overdue Self Assessment tax.
    • HMRC may authorise a debt collection agency to retrieve unpaid taxes, possibly resulting in the seizure of goods.
    • An HMRC officer can seize your possessions and sell them to recoup the money. If you live in Wales, England, or Northern Ireland, this applies to you.
    • HMRC can access your bank account and take what you owe them. This process is known as ‘direct recovery of debts’. If you live in Wales, England, or Northern Ireland, this applies to you.
    • HMRC can initiate legal action against you, which you will be notified of via a county court summons. If judgment is awarded against you, you will be liable for any court costs incurred in addition to having to pay back the money owed, plus interest. If you live in Scotland, the restrictions are different.
    • Creditors can file a winding-up petition to force your company to close down, often known as compulsory liquidation. This can be done by a court order or a statutory demand. In the event of compulsory liquidation, you may need the help of a licensed insolvency practitioner.

    If you don’t pay your tax on time, you could face a penalty and interest on the amount owed. If you are unable to pay your Self Assessment tax obligation, consult with your accountant to determine the best course of action. You may be able to access funds from other sources. By enlisting the help of a professional accountant, you may avoid the stress of dealing with HMRC.

    How WIS can help with self-assessment tax returns

    We at WIS Accountancy Ltd based in Borehamwood always strive to give valuable advice to our clients who need support in converting their innovative ideas into great business ventures and ensure efficient management of monetary funds to continue the business as a thriving going concern.

    Frequently asked questions about self-assessment tax return penalties

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