There’s nothing worse than the spectre of HMRC hanging over your shoulder with a tax bill in their hands.  You know you need to pay the tax bill, but you just don’t have the money. Then you need to take action quickly because HMRC won’t go away.  Here are some ideas on what to do and what happens if you can’t pay your tax bill.

Unexpected tax bills

The first thing to do is to make sure the amount is correct.  There may be ways you can lower your tax bill such as allowances you haven’t claimed for that you are entitled to.  Or maybe there were expenses you incurred that you didn’t realise could go against your company earnings.  Whatever the case, it is worth getting someone to look over your accounts and see if there is any way to reduce the bill which might make it more manageable.

If you are employed or receive a pension, usually you shouldn’t receive a tax bill because the payment should be taken under the PAYE system or deducted before you receive your payments.  If you do receive a tax bill, it may be that they haven’t been collecting enough for what you have earned in which case you will need to get in touch with them to make an arrangement.

Self-assessment

When you complete a self-assessment tax return, this will tell you how much tax you owe.  But there are also situations where HMRC look into your accounts and decide you owe more than you thought and require you to make this payment.

If you can’t afford the tax bill, it is important to reach out to HMRC as quickly as possible, ideally before the payment is due.  That way they may let you use the Time to Pay arrangement. This is where you can spread the monthly payments and get back on track with what you owe.  This is often possible if you don’t have the funds available or could easily access them. It is always better to do this before the tax bill is due as they are less likely to let you spread the cost after the bill is due.

They can add interest to the amount if you are late with any payments and will require it to be paid as quickly as possible.  

Determination tax

If you were due to send in a tax return but haven’t done so, HMRC can make a determination and then decide how much they think you will owe.  This is an estimated amount, but it is legally enforceable until you submit the outstanding tax return. And this needs to be done within 12 months of receiving the determination.  If you send your return in and it means the tax due is less, they will reduce the amount you owe.

Get help

If you know you can’t pay a tax bill, it is important to get help quickly.  HMRC are more liable to help you if you approach before the payment is due. And there are also charities such as TaxAid that can provide help and advice if you still can’t pay your bill. For business, advice see here.