What happens when a director cannot afford to pay their personal Self-assessment tax bill?
As a company director, you must complete a Self Assessment tax return, unless you serve as a director for a not-for-profit organisation without receiving any remuneration. This requirement is in addition to submitting your company accounts and a Self Assessment corporation tax return for the company.
Your tax liability is determined by your income from all sources, including any income received from the company. However, if you pay tax and National Insurance through the company payroll, you won’t be subject to additional tax on this income.
Your Self Assessment tax liability might also account for any benefits received from the company, though this won’t be duplicated if already paid through payroll. If you fall into the higher rate taxpayer bracket, an additional percentage of tax (but not National Insurance) may apply to any dividends received.
Options if you cannot pay your Self Assessment tax bill
When you receive your Self Assessment tax calculation and are unable to pay the amount due, challenges may arise. In certain situations, negotiating a Time to Pay arrangement with HMRC might be possible. These arrangements are tailored on a case-by-case basis and typically involve an agreed schedule of payments to settle the debt over a specified period, usually between six and 12 months, although extensions can be considered under exceptional circumstances.
It’s important to note that Time to Pay arrangements are not a guaranteed solution to tax debt issues and are granted at HMRC’s discretion. HMRC must believe that you possess both the intention and the means to make the payments, including any additional taxes due during the agreed payment period. Additionally, you must demonstrate a positive history of effectively managing your tax affairs.
What if negotiation with HMRC is unsuccessful regarding your outstanding Self Assessment tax bill? In such cases, HMRC can take various enforcement actions, including collecting outstanding payments from your earnings or pension, employing debt collection agencies, authorising bailiffs to seize and sell assets, issuing court judgments against you, or declaring you bankrupt.
Don’t panic; the crucial step when dealing with a Self Assessment tax payment shortfall is to confront the issue and seek assistance. In situations where money is owed to HMRC, it is recommended to enlist the services of an experienced business rescue agency, even if the tax bill pertains to personal tax obligations.
Vanguard Insolvency possesses extensive experience in negotiating with HMRC to offer practical solutions for tax arrears. Tackling the situation alone can be confusing and overwhelming, whereas our expert team comprehends the challenges, understands potential pitfalls, and can adeptly negotiate on your
behalf.
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I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.