Paying the tax due by 31 January is difficult for many taxpayers, and new traders will have to find 150% of their annual tax liability, which will come as a shock. There are three potential solutions to this problem:
1. Budget Payment Plan
You can set up a Budget Payment Plan with HMRC to pay a small amount of tax each week, or month, by direct debit. This little-known facility can be used to pay income tax due under ITSA but not currently; CGT, CT or VAT. Unfortunately, the taxpayer needs to be fully up to date with their SA tax liabilities before they can start a payment plan, but new traders can use it.
The government has promised to make improvements to the Budget Payment Plan by April 2022, and we will keep you informed of any changes when they are announced.
2. Reduce payments on account
At this stage in the tax year you should have a good idea of how your trade has performed in 2021/22. If the profits are below expectations, especially for hospitality businesses which are facing a disappointing Christmas, then we can reduce the payments on account for SA tax due for 2021/22.
If profits are above expectations when the 2021/22 tax return is finalised you will have to pay some interest on what you should have paid on 31 January 2022 and 31 July 2022, but that’s better than having to find the money now.
3. Time to pay arrangement
You need to be able to pay at least one twelfth of your tax bill immediately, as under a Time to Pay arrangement HMRC will expect the tax owing to be paid off in regular instalments within a year, via direct debit payments.
The good news is that getting a Time to Pay arrangement is now an automated process where the tax debt is less than £30,000, as the taxpayer can set it up through their Government Gateway account. If the taxpayer owes more than £30,000 to HMRC a Time to Pay deal must be arranged with a real HMRC officer by ringing the self-assessment payment helpline: 0300 200 3822.
Written by the Tax Advice Network