When it comes time to pay your taxes, even if you’re financially prepared, many sole traders find themselves facing a shortfall.
Whether it’s due to a drop in income, an unexpected expense, or simply a challenging year, the thought of not being able to pay your Income Tax Self-Assessment (ITSA) can be overwhelming.
If you’ve already worked out that you won’t have the cash to pay in January, please reach out to our tax advisers – we can help!
What is the law on your ITSA payment obligations?
The Government sets strict deadlines for payments each year:
- 31st January (return due date for preceding tax year and due date for balancing payment)
- 31st July (due date for second payment on account)
Unfortunately, missed payments incur penalties, and interest is added to any outstanding amount.
This is no small matter – HM Revenue & Customs (HMRC) takes unpaid ITSAs seriously, and the repercussions of non-payment can extend beyond immediate financial strain.
HMRC does offer a Time to Pay scheme for those genuinely unable to meet their tax obligations on time, but this is not a one-size-fits-all solution, nor is it automatic.
To access this, you must meet eligibility criteria and apply, ideally before the payment deadline, to avoid accruing interest or penalties.
The best course of action is to be proactive, communicate with HMRC, and explore practical solutions that can ease your financial burden if you’re struggling to meet the deadline.
Practical strategies if you can’t pay your ITSA
If you’re facing difficulties, here are several approaches that can help you address unpaid ITSA without falling foul of the rules.
- Contact HMRC as soon as possible: HMRC is generally more willing to work with business owners who communicate early and openly. By reaching out sooner rather than later, you signal your intention to resolve the issue and may secure more flexible options.
- Explore Time to Pay arrangements: If you owe less than £30,000, you may be able to set up a Time to Pay arrangement online which spreads payments over 12 months, giving you some breathing space. However, be aware that interest will still accrue on unpaid balances. Larger debts can still be considered for Time to Pay, but they require you to speak directly with HMRC to arrange terms.
- Consider reducing your payment on account: If your business has seen a drop in income and you’re expecting a smaller tax bill next year, you might be eligible to reduce your payment on account. This is essentially an advance payment towards your next tax bill, calculated based on previous earnings.
- Make temporary adjustments to free up funds: Sometimes, it’s worth reviewing your expenses and seeing where short-term adjustments can be made to free up the necessary funds. Even a few temporary changes to reduce outgoings can make a difference, and these small contributions may help you make headway on your ITSA obligations.
Working with a tax adviser at this stage is really important.
We understand the nuances of tax law and the options available, meaning you’re less likely to incur penalties or overcommit to terms you may struggle to meet.
Seeking professional guidance is one of the best decisions you can make if you’re feeling the pressure.
Here’s why:
- Tailored guidance: We can assess your unique financial situation, guide you through available payment options, and ensure you’re fully aware of any tax reliefs or reductions that could ease your burden.
- Future tax planning: Having a tax professional on your side means you can plan ahead, avoiding similar challenges in the future by creating a more sustainable tax approach that works with your cash flow and business cycle.
- Representation with HMRC: We can also act on your behalf in communications with HMRC, helping to negotiate terms that work for your business and potentially secure more manageable arrangements.
If you’re worried about paying your ITSA, don’t wait until the deadline is upon you.
A professional can offer peace of mind and help ensure you’re making the best possible choices for your business, today and in the future.
