Act now to negotiate extra time to pay January tax

The 31 January tax deadline is looming. Lisa Ball, tax partner at accountant Smith & Williamson, explains how to negotiate with the taxman when cash is tight.

• If you have exhausted attempts to reduce tax by using farmers’ averaging and reducing 2014-15 tax payments on account, yet the tax bill remains beyond reach, there may be scope to negotiate “time to pay”.
• This potentially allows you to spread the self-assessment tax bill over several months. It could be longer, but will rarely be longer than a year. In exceptional cases, deferred payment may be negotiated.
• All agreements are at HMRC’s discretion and are individually negotiated over the phone.
• They are based on what you can afford.
• The larger the liability or the longer required to pay, the greater the risk for the taxman. More detail will be requested in such cases.
• HMRC will ask about income and expenditure, assets, savings and investments and how you will get finances back on track.
• If you genuinely can’t pay now, HMRC will encourage you to set up direct debit payments for agreed dates – generally the shortest possible timeframe.
• If you miss negotiated payments, HMRC can withdraw the plan, but it may be possible to renegotiate.
• HMRC will charge interest over the period of underpayment, but agreeing “time to pay” will avoid a 5% penalty on outstanding sums for 2013-14.

If you can show Basic Payment Scheme payment or milk income is due, this may be sufficient to explain why cashflow has been stretched. Don’t wait for the 5% penalties to be incurred at the end of February; the time to negotiate is now.