The 2009-10 tax year finished on 5 April 2010 and if you’re particularly organized, you might have not only received your self assessment tax return in the post, but you could have completed the online variation and received the figure of the amount of tax due for the last financial year.
Now, if you’ve kept an eye on your earnings throughout the past 12 months, chances are the figure shown is not too much of a surprise.
If you’ve been a little slack, though, well, the amount of tax due can seem to knock the wind out of you.
Whether you were expecting the amount of tax due or not, if you haven’t got money to pay it, take a look at these 5 steps to know what to do next.
Don’t worry, but don’t ignore it
If you’re in the position where you can’t pay your tax and have already done a bit of research, chances are the first piece of information you came across was not to ignore the invoice. As tempting as it can be to bury your head in the sand and hope it will all go away, don’t, as I can guarantee that as long as you’re alive (and sometimes even when you’re not), HMRC will keep hunting you down until they receive their money.
Start by checking the details you passed to HMRC to calculate the amount of tax owed. If it seems like it’s a lot different to what you were expecting (even if you weren’t keeping tabs on your income penny for penny, you’re likely to have a rough idea), then check the figures you submitted, as you may have added an extra zero somewhere.
If it turns out that the amount of tax due is incorrect, then great – contact the HMRC and inform them of the mistake. If it’s not correct, however, then most importantly don’t worry.
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Pay before 31 January 2011
Whether you submit your tax return online today and receive the amount of tax due instantly or you send a paper version to HMRC before the 31 October 2010 deadline, you have until 31 January 2011 to pay any tax due.
Giving you 10 months to save up the necessary money to pay your tax, understanding this simple step actually resolves a lot of people’s worries.
Pay within 6 months
If you get to the end of January 2011 and still can’t pay the necessary tax due, you have until the end of July to pay the full amount owed, in full, before HMRC look at getting serious with their collection of the monies owed. Be warned, though, you’ll pay more than the initial tax bill.
There are 3 additional charges you’ll incur if you leave it until 31 July to pay, starting with interest accruing every day from 1 February, which is currently 3%. You’ll also be charged 5% of the outstanding bill on 28 February if you haven’t paid by this date and a further 5% of the bill if it still hasn’t been settled in full on 31 July.
Setup a payment arrangement
HMRC know that not everyone can afford to pay their tax bill in full and whilst they expect those who can to do so, they do offer the possibility of setting up a payment arrangement to spread the cost over a certain period.
As each individual case is different, HMRC doesn’t give any details as to what a general payment arrangement may involve. However, there have been many reports that payment arrangements have been setup that allow for the tax to be paid across several months and whilst HMRC doesn’t promote it, they do not often add substantial interest charges (if any) to payment arrangements.
There are various ways that you can pay your tax bill and chances are you’ll be able to use one of the options – as long as you don’t ignore it and hope it goes away.
Although this might be the case, it is always strongly recommended to put aside around 20% of your earnings on a weekly or monthly basis. By putting this money into a savings account, you can guarantee that when your tax return comes, you’ll have enough money to pay it and assuming you claim all of your deductions, some left over to reinvest in your business.
N.B. I am not a qualified tax advisor and all of the information I have provided in this post is a combination of personal knowledge and resources from HMRC. The post is not supposed to act as tax advice and I recommend that you contact a qualified tax advisor if you have any questions about your own individual circumstances.