I can’t afford to pay my tax bill, what do I do?
It’s that dreaded time of year again. You have to pay your tax by 31 January, but you can’t afford to pay it. What do you do?
We all know (or should know!) when our tax is due for payment, or any big bill actually, but it’s so easy to be left short, and not have enough to pay.
Life gets in the way. Things like Christmas, unexpected house repairs, or damn it you just needed to go on that weekend away (no judging here).
In today’s blog, we’ll look at what to do if you can’t pay your tax bill, but also how to be better prepared next time.
I don’t care about next time – I have to pay my tax now!
1. HMRC Payment Support Service
The best thing to do now is to call the lovely people at HMRC’s Payment Support Service (PSS) and arrange a payment plan to pay your tax bill.
You can call them on 0300 200 3835 and you can find more contact info here.
Before you call them make sure that:
- You or your accountant has filed the relevant return (this can be personal or corporation tax returns, VAT returns, or PAYE returns)
- It is before the payment deadline.
- You have your relevant tax references.
- You know how much tax you have to pay.
- You have an idea of how much you can pay each month.
- You have made a payment towards the amount due, if you can. They like this as it shows willing.
- You’re prepared to set up a direct debit for your monthly payment plan.
Now it does depend on the human you get on the end of the phone at HMRC, and what mood they’re in, but hopefully you will get a payment plan set up, and all is sorted.
2. Financing your tax bill
HMRC may refuse to offer you a payment plan. Everyone’s circumstances are different, and we can’t advise on specific circumstances here, but we do have other options.
You could look instead at financing your tax bill. We work with the amazing team at Capitalise who have a secure online funding platform with over 100 lenders to suit your specific needs.
We can help you to find the most suitable lender, and work with you to get the right information to them for your funding application.
Do get in touch if you’d like us to help you with finding the right funding partner.
Alternatively, feel free to start your funding search with Capitalise now, by following this link.
How do I prepare better next time?
Fail to plan, plan to fail
The best way to prepare is to have a plan. The plan may include creating a cashflow forecast for the next 12 months, so that you can see in advance when you’ll need to pay tax, and make sure you have enough cash to pay.
This may mean budgeting so that you have the cash, or you can search for funding with a bit more time on your hands, as you’ll know in advance when you’ll need the funding.
We can provide you with a 12, 24 or 36 month cashflow forecast, and give you options based on different scenarios too (for example, what if you take on a new team member).
Manage and monitor your cashflow
Managing and monitoring your cashflow on a regular basis is key to keep your stress levels down and to make sure you’re prepared.
We recommend this for all of our business clients, but it would also be great to use it for your personal and household income and expenditure.
Put funds aside regularly
This is the best plan for future tax payments, and I’m talking VAT, corporation tax, personal tax.
We’d advise setting up a separate deposit account, and putting regular payments into it, perhaps set up a standing order.
This is great for saving up, as the funds are “out of sight, out of mind” and you won’t be tempted to spend them.
Saving 20% of your income is a good amount to save, but we can help you to work out a more accurate figure, depending on your circumstances and which taxes you need to save. Do get in touch with us for assistance.
Look at ways to legally reduce your tax
We work with our clients to forecast their business and personal tax, and then look at legitimate and legal ways to reduce this tax.
Our advice is very specific to your circumstances but can make quite a dent in your tax bill.
Working with our independent financial advisor Kevin Morris, we were able to reduce one client’s corporation tax by £68,000!
Many of the ways we can reduce your tax bill have to happen in the right tax year, so it’s important to talk to us a couple of months before the end of your personal or business tax year.
Talk to us, we’re here to help!
Review your costs
The reason you don’t have the funds for your tax bill is likely to be because you’ve spent it already. You only pay tax on your income or your profits, so you would have had the income or profits, but where’s it gone? That’s a big question, and another area where we can help you.
In the meantime just have a look back through your spending over the past 3 or 6 months. You can look through your Xero data, or go through your bank statements.
Have a look at costs you don’t need to spend.
Software subscriptions are good place to start. Are you using the software, is it worth it? Can you downgrade if you’re not using all the features?
Have a look at costs that you could get cheaper elsewhere
Utilities are worth checking, and services that you’re not getting full value from.
Now what about one off costs?
You may have made one off costs that were unnecessary, so don’t do that again! Or you may find costs that you’d forgotten about, and now make sense of why you don’t have the cash. Did the boiler need repairing? Did you have to pay agency fees for a new recruit?
Increase your income
If you’re spending beyond your means, either personally or in your business, this may be why the funds aren’t there to pay the tax.
Consider steps you can take to increase your income. It may be asking for a payrise, or increasing your fees or prices.
It may be getting more customers online or through the door, or finding ways to increase their average spend with you.
Yes you will have tax to pay on this income too, but if you generate more income, you have more funds to cover costs and tax.
Get paid quicker
You may simply not have the cash because your customers haven’t paid you! This is a common problem.
We have recently launched our Virtual Credit Control service, where we chase your customers for you! Find out more on How do I get paid quicker and save time blog.
You may also want to think about getting the customers you invoice to sign up for direct debits with you. Have a read of our Get cash in the bank quicker blog for more ideas.
Ready to find out more?
We’re running a Supercharge your Cash event on 27 February 2020. You’ll find out so many more ways to control your cash in and out, and hear from lots of amazing and inspiring speakers.
Keep an eye on our blogs for more info, and follow our eventbrite page, as we’re just about to release early bird tickets!
Thanks for reading!
Kinder Pocock are an approachable cloud-savvy firm of accountants based in Herefordshire but supporting businesses on the move.
We specialise in Security/Technology, Design and Indie Hospitality businesses.
Contact Us to see how we can help