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February tax debts?

By Adrian Huston

As your accountant recovers from the January, 31 deadline for sending in Self Assessment Returns this is a good time to remind those with tax debts of the need to take some form of action.

Firstly make sure any tax you owed for 2008/09 was paid by January 31, 2010. Many people – mostly self-employed – pay their tax in January and July each year, with a catch-up payment on January 31. This balancing payment most typically arises where your income was higher in 2008/09 than 2007/08. Given the financial times we live in, balancing payments were lower in January 2010. If you owe some of your 2008/09 balancing payment then please do your best to clear that before the end of February. HMRC is already adding daily interest onto any debt at 3% per annum. That’s not too bad a rate, but beware the end of February. Any unpaid 2008/09 tax will also then attract a surcharge. This is a flat 5% of the tax owed, so is a hefty charge.

You may also have been asked to pay on January 31, 2010 a Payment on Account towards 2009/10. This is 50% of the total tax for 2008/09. If cash-flow is tight then you should know that the 5% surcharge does not apply to late Payments on Account. So if you must delay clearing your tax debts, then at least a late Payment on Account only attracts interest. At 3% like any late income tax.

As the government puts pressure on HMRC to rake in tax debts, many accountants report a stiff attitude being taken by those HMRC staff trying to bring in the dough. On their side HMRC stresses they are not in the game of financing businesses. They leave that to banks (and we know whhow sympathetic they are nowadays!) HMRC will try to work with viable businesses where tax debts need to be paid. There’s an important term there – viable businesses. The tax collection people have started to use in-house accountants in deciding who should be given time to pay. These people will look further than HMRC used to. They may look at the business accounts in some detail. Tax collectors never used to do that. If HMRC then forms the view that the business is not viable then they may take more serious debt collection action. By that I mean moving swiftly towards bankruptcy or insolvency procedures – in other words possibly closing a business down.

VAT debts are also a big problem at the moment. As with any debts the earlier you or your accountant contact HMRC the more sympathetic they will be. One point of importance. Do your best to pay the current VAT from the most recent VAT Return. If you have arrears from previous quarters then HMRC may talk to you about that. But if you don’t keep up paying the current VAT then they won’t even want a conversation with you.

If you are not currently in contact with HMRC about your tax debts their Business Payment Support Service may be able to help. Check out or phone them on 0845 302 1435. They are there every day from 8 to 8, but close at 4 at weekends.

Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co –

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