January 31 is usually the date for the biggest tax payment of the year, being both the balancing payment for 2013/14 and the first payment on account for 2014/15, both based on your self-assessment tax return, also normally due on 31 January.
Only pay the right amount
The only way to avoid paying interest is to pay the tax on time. But you need to be sure you’re only paying the tax you actually need to pay. Take a look at your business results for 2014/15; your payment on account is based on 2013/14 results, so if your profits have dipped you may be able to reduce your payment on account to reflect the lower profits. This may not only be because of reduced income; take a hard look at your expenditure, including bad debts and capital investment. If you’ve invested in plant and equipment, 100% annual investment allowance can reduce profits too.
If you filed your return by 31 October and HMRC calculated the tax, check that their calculation agrees with what you were expecting: they don’t always get things right; and you may find a mistake you made on your return.
Interest is unavoidable; penalties kick in after 30 days
A 5% surcharge applies to all tax still unpaid after 2 March plus a further 5% if the tax is still unpaid after 31 July.
Need time to pay? Call HMRC
The main service that HMRC provide is their business payment support service (BPSS), open by phone on 0300 200 3835 from 8am to 8pm, Monday to Friday and 8am to 4pm, Saturday and Sunday. You can’t just ring up and ask for time to pay - you need to be ready to answer questions about the reasons why you’re having trouble paying; what you can pay; and when, realistically, you will be able to clear the debt.
BPSS isn’t only available for self-assessment. It covers NIC, PAYE, VAT and construction industry deductions too, and you have to take all your tax liabilities into account: it’s no good arranging for time to pay your self-assessment bill if the VAT is left unpaid. Remember also that every missed or late VAT payment counts as a separate default, so if you start missing VAT payments you can soon build up a track record of defaults.
But every payment that you can arrange to make late will avoid a penalty provided you actually make the payment by the time agreed with HMRC.
If you’ve got money in your company and a personal bill to pay, you may be able to take a loan. You don’t have to incur PAYE and NIC on salary or bonus, or income tax on a dividend if you are simply suffering a personal short-term cashflow problem. A short-term loan won’t be taxable if your total employment-related loans in the tax year never go above £10,000, but you need to make sure you repay it before nine months after the end of the tax year, or the company will incur a charge.
Finally, if you were expecting to be able to pay but unforeseen problems beyond your control prevent you paying on time, you may be able to avoid a penalty if you have a ‘reasonable excuse’. Simple shortage of funds isn’t a reasonable excuse, and you must still pay the tax as soon as you can.
Practical Tip:
Prepare a budget for the year ahead including all the tax and NIC payments you expect to make. When BPSS was introduced HMRC accepted most offers, but now they may not accept your first offer and you may not get a second chance if you can’t meet the agreement.
