Difficulties paying tax?

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion

I was just wondering what you advise clients to do when they don't expect to have the money to pay their tax bills. I had a client last year who phoned the revenue & was told that she could pay a third of her tax in Jan, a third in Feb & a third in march - is that normal for the revenue to do that & do you know if it would have any effect on their credit rating?

Jodie

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    All too common a problem!

    First thing I advise them is that any tax unpaid by end of February incurs a 5% surcharge and a further 5% surcharge if still unpaid by 31st July. This does not apply to payments on account so if they can at least get the balancing payment settled then that is a good start.

    I then tell them that interest will be charged at 7.5% until it is all paid so if they can get it paid off within, say, 3 months then it will not be too expensive.

    If they are able to pay the tax in the short term (3 or 4 months) then I usual advise that they just ignore reminder letters and send payments as often as they can. I find that the Revenue are less willing to agree to formal repayment arrangements these days. It is their opinion that they are not there to lend money and would rather taxpayers took out a loan to repay the tax.

    As far as I am aware, it has no effect on their credit rating.

    If they are not going to be able to repay the tax informally by 31st July then they are probably going to have to look at other funding options. Requesting a time to pay arrangement is an option, but unlikely to be given. After that it is usually personal loans and credit cards.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    thanks for that, that is what I thought, but this client of mine last year didn't get any surcharges imposed, even though she was almost a month late paying the last installment, so that confused me! They did charge interest though.

    Thanks


  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    I have got a client who still owes tax from 04-05. They send him (and me) statements about every couple of months. He drip feeds them money on a sporadic basis, and never seems to get grief from them :? I think that it is yet another aspect to their under-staffing problems.

    Owing money to HMRC is always cheaper than owing money to the bank, building society, credit card money etc etc - they have an infinitely preferable interest rate :lol:

    Happy new year to one and all.

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    aaargh! tax unpaid to HMRC in the long run raises the tax burden on the rest of us on PAYE! Not exactly moral to recommend defaulting on payment to the nation as opposed to a commercial enterprise, is it?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?
    charlihedge wrote:
    tax unpaid to HMRC in the long run raises the tax burden on the rest of us on PAYE!

    Not really. Tax here is being deferred not defaulted. Interest is charged so no net loss to the nation.
    charlihedge wrote:
    Not exactly moral to recommend defaulting on payment to the nation as opposed to a commercial enterprise, is it?

    If you think that represents immoral behaviour then I think you need to get out more! :roll:

    Incidentally, are you therefore suggesting it is ok to default on payments to other businesses?

    Seems a little contradictory to me.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    I would prefer my clients to owe money to Tony and Gordon than to me :wink:

    I don't have the Bank of England to prop up my business :lol:

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    It is usually the ones with the late Returns who struggle to find the money to pay their tax bill. I always tell them to get their Tax Return in on time and then pay what they can - at least the balancing payment due. Then they will receive a Statement of Account reminding them of the first payment on account and hopefully they will have some money together by then. I always emphasise to them that it is better to get an overdraft or a bank loan than to owe HMRC.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    Why is it better? It is more expensive having a bank overdraft/loan than the paltry 5% that HMRC charge :shock:

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?
    claudialowe wrote:
    Why is it better? It is more expensive having a bank overdraft/loan than the paltry 5% that HMRC charge :shock:

    Claudia

    I would have to agree with that. Although only if the client can pay within 12months. After 12 months the Revenue can impose a 100% penalty based on the tax liability.

    Regards

    Dean
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    I know - but as a temporary measure Bank of Revenue and Customs are the cheapest way to go!

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?

    I did have one client (no longer self-employed for a number of reasons!!) who hadn't paid any of his tax and within 6 months they were threatening Court Action.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Difficulties paying tax?
    claudialowe wrote:
    I know - but as a temporary measure Bank of Revenue and Customs are the cheapest way to go!

    Claudia

    That's why I was agreeing with you! :?

    Regards

    Dean

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