HMRC income tax document© Jeff Blackler/REX/Shutterstock

Farmers who know they will be unable to pay their tax bill by 31 January because of cashflow problems need to negotiate with HMRC now for a ‘time to pay’ arrangement.

Lisa Ball, private client tax partner at accountants Smith & Williamson, said many farmers were facing a higher tax bill than normal because they had reduced their machinery investment, which had resulted in a reduction in capital allowances. “It’s vital that people stay on top of their tax bills as they can very quickly spiral along with associated penalties and interest payments,” she said.

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“If all available reliefs have been claimed and the tax bill remains beyond reach, it may be possible to negotiate ‘time to pay’ arrangements with HMRC.”

Spreading the cost

Mrs Ball said a time to pay agreement potentially allowed farmers to spread the self-assessment tax bill over several months, rather than be forced to come up with a lump sum by the end of January.

While HMRC would continue to charge interest over the period of underpayment, such an agreement meant that farmers should be able to avoid the 5% penalty surcharges on outstanding sums for 2015/16.

All agreements were at HMRC’s discretion and could be negotiated over the phone, on an individual basis, she said.

The installments required would be based on what you can afford, so HMRC would ask about income and expenditure, assets, savings and investments and how you will get your finances back on track.

Payment arrangement

The larger the liability or the longer required to pay, the greater the risk for HMRC, so more detail would be requested in such cases.

HMRC would ask for a direct debit to be set up on agreed dates, generally within the shortest possible timeframe.

If any of these payments were missed, HMRC could withdraw the arrangement; however, it might be possible to renegotiate.

“If you can show a payment is due under the Basic Payment Scheme (BPS) or for milk/crop sales, this may be sufficient to explain why cashflow has been stretched,” said Mrs Ball.

“However, where a one-off matter such as a delayed significant BPS receipt is cited as the reason for needing time to pay, expect HMRC to require settlement of the tax as soon as the relevant income is received.”

Reducing payments on account 

Farmers can also look at reducing their payment on account – but producers need to be cautious about going down this route unless they are sure that their business profits will be lower than the previous year.

Mrs Ball said making a request to reduce payments was a simple process that could be done by logging into a taxpayer’s online account.

“However, you leave yourself exposed to interest if there is tax outstanding as a result,” she said.

Payments on account can be reduced at any time up to 31 January. No particular evidence is required