All late paid tax now carries interest at 3%. Where the tax has been outstanding for more than six months a 5% surcharge on the outstanding amount may also apply.
Surcharge rates of up to 15% can apply for VAT paid just one day late. If you can only pay some of your tax bills it often makes sense to prioritise the VAT but we can help you decide.
A first step when faced with a tax bill you cannot pay should be to contact HMRC and make an arrangement to spread the bill over a number of months. This is called a Time to Pay agreement and can be done online if you owe HMRC less than £30,000. Where the debt is greater than £30,000 or you need more than a year to pay, you need to speak to an HMRC officer and provide more information. We can help you with that.
If you have income tax still outstanding from 2019-20 but you are due a tax repayment for 2020-21 you might assume that the repayment would be off-set against the tax due and prevent any further interest running. Unfortunately this is not how the tax rules work. The tax repayment for 2020-21 is generally off-set against the outstanding tax, but only with effect from the final deadline for submitting the tax return: 31 January 2022 for the 2020-21 tax return.
If your 2020-21 tax return was submitted earlier than 31 January 2022 we can ask that HMRC treats the effective date of the repayment off-set as the date when your tax return was logged as received by HMRC. This should remove much of the interest charged.
This article is from the latest issue of our A Matter of Tax Newsletter. To receive future copies of any of our newsletters directly to your inbox please visit our preference centre and register your interest.