It is that time of year again, when Christmas is over, the box of decorations is back in the loft, and the box of receipts and invoices comes out. Self assessment time. The returns are due by the end of January, with this date having not changed for some time. Despite this, most would not have even thought of preparing the information let alone paying HMRC the tax that could be due until now.
Dont leave paying HMRC too late
When the returns could have been submitted in the summer, why do so many leave it until the last minute? It may be that they want to avoid paying HMRC and therefore delay finding out how much they need to pay. This however could result in it being left so late that you simply can’t pay the HMRC debt on time.
So what should be done differently? How can individuals and companies avoid finding themselves with issues paying HMRC? As with all cash flow problems, the answer is quite simple in principal, but not always so easy in practice.
Each month companies and directors hold money that needs to be paid to HMRC. Whether that be PAYE deducted from employees, VAT received on sales or tax due on dividend payments. This does not need to be immediately paid to HMRC, and in some cases may not be due until a year later. The obvious answer would be for a provision to be set aside each month for paying HMRC. In reality, for most this simply does not happen. The VAT is collected and spent and three months later there is no money to pay the VAT as it is due. So what happens next?
Paying HMRC avoids your company being wound up
HMRC may seem to be the easiest creditor not to pay. Unlike your paper supplier, they cannot refuse to supply due to non-payment. They can’t immediately stop you having employees or charging VAT. As a result of this they have powers to enforce payment where they are not being paid. Bailiffs can be sent, or a petition issued at court for the winding up of the company or bankruptcy. It does not though need to get this far. When the issue is recognised it is the time to enter in to a dialogue with HMRC to pay the debt over time. This could be informally or through a time to pay agreement. If the problem has got bigger than that, and the debt has reached a position where more than a year is needed to pay it off, a company voluntary arrangement or individual voluntary arrangement may be right, to stop action from not paying HMRC and to allow the debt to be spread over a number of years, or a lump sum settlement offered.
There is usually a solution to paying HMRC
The earlier the issue is recognised the more that can be done, but even on the day before a petition is due to be heard, we have still saved people from bankruptcy, and used an arrangement to give a better result for the individual and the creditors.
As with all debts, self assessment debts are met through good cashflow management and ensuring that provisions are made for the future, not just focusing on the cash today. By competing your self assessment early, by putting money to one side each month, when the time comes for paying HMRC, it will be less of a burden and will simply be an expected payment that can be made with ease.
The overall message would be to focus on future cashflow and not leave it all to the last minute.