Welcome back to another episode of "I Hate Numbers," where we aim to guide you through the maze of financial challenges. Today, we're tackling a common concern: "Paying Tax Bill." As your dedicated business finance fixers, we've got your back, offering insights to navigate this stressful situation.

The Initial Situation

Having filed your personal tax return, you may face the daunting reality of lacking funds to meet the obligation. It's a scenario that can induce sleepless nights, but worry not – we're here to provide a roadmap to alleviate the stress.

Stay Calm and Take Action

In such circumstances, panic is not the solution. Stress only compounds the issue, leading to undue anxiety. Take a moment to breathe, relax, and follow our suggested steps to address the challenge effectively.

Arranging Time to Pay with HMRC

If your funds are insufficient, the crucial step is to initiate a payment arrangement directly with HMRC. We recommend the online mechanism, ensuring a smooth process without the need for direct conversations.

Understanding HMRC and Budgeting

Recognize the distinction between tax collectors and assessors at HMRC. Empathy goes a long way. Before contacting HMRC, assess your affordability by delving into your personal and business cash flow. For effective budgeting, explore the BudgetWhizz online platform we've linked in the show notes.

Payment Arrangements and Penalties

HMRC typically accommodates at least a six-month payment arrangement, provided efforts to raise funds are evident. Negotiate terms and build a rapport. However, remember to make arrangements by the deadline to avoid a 5% penalty surcharge. Late filing and payment penalties are also imminent without proactive communication.

Payments on Account

Understanding payments on account is crucial. Triggered if your tax bill exceeds a thousand pounds, it involves paying upfront towards the following year's tax bill. Flexibility exists to reduce payments if income expectations change, but accuracy is key to avoid interest charges.

Reviewing Previous Tax Returns

Moreover, consider reviewing past tax returns, as adjustments within a four-year window may be possible. Seek guidance from a competent accountant for any overlooked claims or expenses.

Conclusion

In conclusion, handling tax-related stress involves proactive steps – reviewing returns, making payment arrangements, adjusting payments on account, and ideally setting aside funds for future tax payments. Share this episode with those who may benefit, and remember, keep stress levels down as you take charge of your tax situation. Until next time, stay financially savvy!

Hi folks, and welcome to another episode of I Hate Numbers. This is the podcast that's got a simple mission. It's to help you and your business make more money, reduce your stress and anxiety, help you win that battle that goes on between your ears and have the business life that you aspire to. My name is Mahmood.

I'm your business finance fixer, accountant, tax advisor and author. And today I'm going to be diving deep into a topic that can, if we let it, give sleepless nights. What do you do if you can't pay your personal tax bill? But don't worry, I'm going to look after you. And by the end of this episode, you will have a clearer path as to how to tackle this issue and reduce

Any tax related stress.

You're listening to the I Hate Numbers podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number loving care is what it's about. Tune in every week. Now here's your host, Mahmood Reza.

So what do you do if you find yourself in a situation where you filed your personal tax return, that's one big task out of the way, but you just don't have the funds to pay for it. Well, worry not my friends. I've got some tips and advice to help you navigate this tricky situation. It's a situation that will happen to the best of us.

Now, first things first, if you've completed and filed your tax return and you realize you haven't got the money, you haven't got the funds to pay HMRC by the due date. And please do not panic, stress will not solve anything. It will only make matters worse, it will only give you undue anxiety. So you need to take a pause, take a deep breath and follow these steps.

Now, if funds aren't there, if you haven't put money aside to take care for that tax, then you must arrange a time to pay arrangement directly with HMRC. Now for those of you who filed your tax return some time ago, and that's before the 31st of January, year end date, then online is the way to go. Now for the online mechanisms, so you don't have to have any conversations with HMRC.

You don't have to worry about making sure that the operation at the other end is not going to be too unfriendly. You don't have that fear and phobia if you want to avoid that then online is the way to go. But unfortunately the online facility is available to those people who file 60 days at least before the filing deadline of 31st of January, have no current issues with any outstanding debts, their affairs are bought up to date and those conditions apply.

Then you can make that payment arrangement online. If you've missed the opportunity for this year, 23 to 23, then bear it in mind for the following year. Obviously, ideally, make sure you've got money to put to one side to take care of future tax obligations. More of that towards the end of the podcast.

Now, before you pick up that phone, before you contact HMRC, remember this. The people who collect the taxes are not the same people as who assess them, they've got different objectives, different challenges. So try and have some empathy and some sympathy for the tax collector for debt management. That may not be the easiest thing in the world to do, but they have a job to do.

They’ve got targets, they've got directions, and therefore their primary job is to make sure they collect the money that they see that's owed to HMRC. So have that separation in your mind between the tax management department and the people who assess the tax. Two completely separate operations. Now when you're preparing for your conversation with HMRC, initially consider your affordability.

Look at your personal, look at your business cash flow, look at your tax debt and assess what your financial situation looks like. A budget, a cash flow is a must, by the way, to understand what is going to come into your business, what's going to come into your household, after paying for those essential items, after paying for those ongoing costs.

You need to help assess your affordability and how much, dare I use that phrase, spare cash that you actually have. In the show notes by the way folks, there is a link to a fantastic online cash planning platform called BudgetWhizz. Have a look at that, and that's a great way to help budget and to manage your business cash flow.

Let's get back on with the podcast. HMRC, as a default rule, will typically go for at least a six month payment arrangement without too many problems. If they know you can't pay immediately, they know you don't have the funds, you've tried your best to get those funds together. Then they'll know what efforts obviously you've made to raise the money and think of HMRC as just a slightly bigger beast of a supplier.

If you've fallen into arrears with any supply for goods and services, naturally they want to get their money in as quickly as possible. But if you build up a good relationship, if you've got a good rapport and you communicate with them, they're likely to be more flexible and receptive to those payment terms.

If you're in business and you are invoicing clients, think about what happens when you don't get paid. So therefore have some degree of empathy and some degree of understanding. Now you can sometimes extend the arrangement for up to a year. We have clients that we've looked after and we've managed to get payment arrangements extending beyond the year.

Typically those will be in exceptional circumstances, but each case is dealt with differently. Now absolutely essential folks, you must make any arrangement with HMRC by the 28th of February, 2024. So if we're talking about the 22-23 tax year, make sure you contact and make an arrangement by that date.

Failing to do so could result, and will normally do so, in a 5 percent penalty surcharge for non payment. It's a flat fee, not an annual cost. Late filing penalties for missing payments are also possible if you don't communicate with HMRC. Unfortunately, HMRC these days are getting a bit more assertive and will be imposing late filing penalties, late payment penalties, so you do not want to have those on your tax record.

You do not want your bank account depleted by unnecessary penalties. Now, let's talk about a topic that's been flagged up before, I've spoken about before, but it's about payments on account. Now, the general rule about payments on account is if your tax bill exceeds 1,000 pounds, you will trigger by default

what's called payments on account. This is basically paying money up front towards the following year's tax bill. You need to pay half of that money up front by the end of January and the next half by the following July 31st. So, typically, if your tax bill has been two grand, not only will you have to pay HMRC the 2,000, but you'll also have to pay half of that by the 31st of January and the next instalment by the 31st of January 2024.

And that's payment up front towards your tax bill, by the way. So when it comes to next year and you complete your tax return, you've already paid that money up front. Now here's the good news though with payments on account, these are not cast in stone. If you anticipate your income is going to be lower in the following tax year, perhaps you've got less clients, perhaps you're winding down, perhaps you're changing jobs, perhaps you've got more expenses,

there could be a number of reasons as to why your income may be dropping in the following year, you can elect to reduce those payments. Now this flexibility will relieve some financial stress, but remember you need to calculate reasonably accurately because if you underestimate significantly or even minorly your payments on account, if you're going to reduce them, remember you will be charged interest on those underpayments.

However, the flexibility of being able to reduce your payments on account can relieve financial stress. My personal advice would be the earlier you submit your tax return, the earlier you know what your liability is. And the earlier you know what those payments on account are with more accuracy. If you don't estimate your payments on account accurately, any underpayment will incur an interest charge of 7.75%

Ouch! That's a high interest charge to pay yourself. I would do the payments yourself or consult your accountant who should be able to come up those estimates for you. If you're hitting a brick wall and you can't get that help, then check out the contact form and see where we can help you. Now before we wrap up, consider reviewing your previous tax returns.

You have a window you can go back at least four tax years to make any necessary claims or adjustments. You may not have claimed expenses in prior years, you may not have claimed things like gift aid, you may be a higher rate taxpayer and forgotten to claim pension contributions you're making privately. There could be a number of issues that have arisen previously that you've not been aware of or it's been overlooked.

If you're unsure, don't hesitate to contact a competent and experienced accountant for guidance. Now in summary, don't let tax related stress get the better of you. Review your return, make payment arrangements, payments on account if needed, and remember, ideally put money aside for future tax payments. We would normally advise clients to put a certain percentage of what they invoice their clients away, put it into a separate account, ideally put into a separate account that accrues interest.

And at the end of the year, you've collected the money that hopefully will equate to the tax that you owe. If you've over collected, then you've got a bonus there. If you've under collected, then at least you've collected the majority of the money towards that future liability. I hope you found this episode useful, folks, and if you did, please share it with anyone who might benefit.

But until next time, keep that stress level down and take charge of your tax situation. Relax and let somebody else do the tax. Until next week, keep those stress levels down. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode.

We look forward to you joining us next week for another I Hate Numbers episode.