All the business will run into the same problem at some point during its life - the deadline comes around to pay your self-assessment tax bill and you realise you do not have the funds available to pay.
It can happen if you take a lot of stress, however, there are ways available to help ease the burden of paying your self-assessment tax bill. Following are some ideas to help you find a way through this difficult situation.
Use every tax relief available
Tax reliefs are there to be used and there is no reason why every business owner or sole trader must not use them. They are an entitlement granted by the government but can often be forgotten about, not known about or not taken in full. The most popular among these is the personal allowance - the amount of money you can make before you pay tax. This is now set at £11,000 but it does tend to increase a little either every year or two years. This indicates that you do not need to pay tax until you have earned more than £11,000, although national insurance payment requirements have a lower verge.
Then check your outgoing expenses relating to your business. Something utilised partially to the business can be demanded against tax by that amount - for example that you use your mobile phone 50% for your business calls and 50% for personal use. Then that 50% for business calls can be put down as a business expense and use as a relief against your tax bill.
Offer a payment proposal
After you went through every possible relief that can be utilised has been taken into account and the bill still cannot be paid then do not avoid that. Every day that you leave a bill, HMRC adds interest and will add fines to the account, which makes the problem even worse.
If you cannot disburse the bill right away, then the best bet is to approach HMRC with a payment proposal. You will need to have income and expenditure details to show what you can pay and HMRC is legally obliged to consider the proposal - but you cannot always accept it if you are offering too little an amount. They might ask about savings or other assets that can be used for paying the bill.
It has often been found that the reason you cannot pay directly is due to cash flow problems because of late payments from customers or clients. If you are anticipating payments to start arriving soon, then describe this to HMRC and they might grant extra time to pay your bill.
If you do agree with the tax department about a repayment plan, ensure you keep up the payments or get in touch with them immediately if you think there is a problem. Otherwise, they are within their authority to begin legal proceedings against you to recover the money that can put your business at risk of closure.
Paying by account
After you have handled the problem, the best way to make sure that you do not have a repeat situation is to set up a system where you pay on account. It implies that your tax bill is divided into two part payments - one due payment is on 31st January and the other due payment is on July 31st.
When you choose to pay by account, the payment which you will make is based on your previous year’s earnings. Hence, if you end up earning more in the subsequent year, you need to be aware that you might have an extra sum to pay in the following January when you submit your accounts. But the least will be far less than having to pay the whole amount all in one go. You can just give some money away each monthly bill is prepared in addition a little extra if it looks like you will earn more than you did in the previous year.