Any late tax payments now carry interest at 3%. Should tax be outstanding for over 6 months, a 5% surcharge on the outstanding amount may also apply, along with surcharges of up to 15% for VAT paid as little as one day late. If you can only pay some of your tax bills, it is often better to prioritise the VAT; however, our team can always advise on this.
When faced with a tax bill you cannot pay, the first step should always be to contact HMRC to make an arrangement to spread the bill over a number of months. This is known as a Time to Pay agreement and can be done online if you owe HMRC less than £30,000. If the debt is over £30,000 or you need longer than a year to pay, you will need to speak directly with an HMRC officer to provide more information – we can help you arrange and prepare for this.
Suppose you have income tax still outstanding from 2019-20 but are due a tax repayment in 2020-21. In this case, you may assume the repayment would be offset against the tax due and prevent any further interest from running. Unfortunately, this is not how tax rules work. The tax repayment for 2020-21 is generally offset against the outstanding tax, but only with effect from the final deadline for submitting the tax return – this is the 31st of January 2022 for the 2020-21 tax return.
If your 2020-21 tax return was submitted earlier than the 31st of January 2022, we could ask that HMRC treats the effective date of the repayment offset as the date when your tax return was logged as received. This should remove much of the interest charged.