Cannot Pay Your Tax by 31st January?

Wednesday 14 January 2009

Growing number of taxpayers who cannot pay tax by January 31st should start discussions with the Inland Revenue now or face heavy fines

5% surcharge on late tax from end of February
a further 5% surcharge if tax is more than six months late

The growing numbers of taxpayers who because of the economic downturn cannot pay their tax by the January 31st deadline need to begin negotiations with HM Revenue & Customs (HMRC) now to avoid paying surcharges of up to 10% on tax overdue in addition to interest, warns Dixon Wilson, the City of London accountancy firm.

Dixon Wilson says that tax payers who are experiencing cashflow difficulties should start negotiations with HMRC to defer payment of tax as soon as possible.  It is often possible to agree that they do so without incurring late payment surcharges.

If no agreement is reached with HMRC before the end of February, tax which is unpaid at that time will attract a 5% surcharge on top of the usual interest charged by HMRCat their current rate of 4.5% (base rates are currently 1.5%). Tax still owed to HMRC on 31 July 2009 will be liable for a further 5% surcharge in addition to the usual interest charges.

Dixon Wilson says that in the past taxpayers struggling to meet their tax liabilities often failed to raise the matter with HMRC before the surcharges are applied.

James Kidgell, Partner, Dixon Wilson, comments: "This may be the first time that taxpayers are really struggling to pay their tax by the January 31st deadline since the introduction of self assessment for 1996/97."

Taxpayers are often wary of approaching the Revenue, but simply paying tax late without negotiating a payment schedule is about the worst option as it invariably means paying surcharges.

He adds: "Taxpayers will need to demonstrate genuine cashflow difficulties, and an inability to borrow from elsewhere, and make a reasonable proposal demonstrating their ability to pay their tax over an agreed period. As long as they reach an agreement with HMRC before the end of February, late payment surcharges are often avoided.  HMRC's usual interest charges for late paid tax will continue to apply to any agreed schedule of payments."

Dixon Wilson points out that HMRC would expect to respond to a proposal to defer the payment of tax within four working days so taxpayers are advised to begin negotiations as soon as possible.