We often get calls from clients who have received a larger-than-expected tax bill from HM Revenue & Customs (HMRC).
They are usually worried about whether they can pay it and if it could negatively impact their business (and personal) finances.
However, there are ways to lessen the burden after you’ve received your tax bill and strategies to make sure it doesn’t happen again in future.
Firstly, let’s look at the individual elements of your tax bill.
It may include various tax components, such as Inheritance Tax, Capital Gains Tax, and others.
If you think that your accounting for the year is correct and the bill seems excessive, you should take the time to examine your bill thoroughly.
Make sure that all the figures are accurate when compared with your accounts.
This initial step is vital to address any discrepancies and plan your course of action going forward.
If you believe the tax figure on your bill is incorrect, it’s essential to act quickly and efficiently.
The first step is to carefully review your tax bill and gather any supporting documentation, such as income statements, receipts, or deductions.
At every stage, make doubly sure that all your figures and calculations are accurate.
To address the issue, you can initiate a dispute or query with HMRC through their official channels.
The HMRC website provides guidance on how to report inaccuracies in your tax bill.
Additionally, you may need to contact your assigned tax officer or HMRC’s customer service helpline for further assistance.
When communicating with HMRC, be prepared to provide specific details about the error, including the tax year in question, the nature of the mistake, and any relevant supporting documents.
If indeed HMRC has calculated correctly and your bill is simply larger than you were expecting, you’ll need to quickly consider a few key points.
How are you going to finance your tax bill?
There are several options to explore, each with its own set of pros and cons.
You have probably already considered using your savings, taking out a loan, or exploring alternative financial resources.
Here are our thoughts on the different options available to you:
Using your savings:
Taking out a loan:
Alternative financial resources:
These might include Peer-to-Peer (P2P) lending or Crowdfunding and while all have their distinct considerations, most share the same pros and cons:
No matter what funding source you are considering, please consult with your accountant first – it’s not a one-size-fits-all affair.
Your tax bill may include first and second payments on account, which can introduce an additional layer of complexity to your tax obligations.
Payments on account are a system used by HMRC to collect tax in advance for the upcoming tax year.
The first payment on account is typically due by midnight on 31 January, covering half of the previous year’s tax bill.
The second payment on account is due by midnight on 31 July, covering the other half.
These payments are made in anticipation of your tax liability for the current tax year, based on the previous year’s earnings.
If financing your tax bill or making payments on account is challenging, you may be able to postpone the deadline.
HMRC offers a time to pay arrangement option, allowing you to spread your payments over a more manageable timeframe.
Early communication with HMRC is essential to explore this option and avoid unnecessary penalties and getting these communications wrong can result in wasted time and penalties.
As such, please discuss these with your accountant.
In all cases, whether the figures provided by the taxman are right or wrong, we strongly suggest that you consult with an experienced financial professional.
Not only can we help you determine if HMRC has made a mistake, but we can also fight your corner if they have.
If, on the other hand, HMRC is right, but you are nonetheless surprised by your bill, we can help you mitigate its effects.
Either way, it’s best to have an accountant on your side.
Give us a call and we’ll do our best to help you.
