Huston’s Taxing Problem
Hopefully by now those readers with tax to pay by July 31, 2009 have cleared the bill. One of the worst aspects of the Self Assessment system is that tax is demanded on just two dates – January 31 and July 31.
These are bad dates because January is probably the worst time for family expenditure after Christmas and July is when everyone feels pressure to go on holiday or finds work slows down.
Self-employment means you have, until now, had to go along with the above two dates for tax payments. This takes no account of the fact that you make money the year-round. One of the many advantages to being an employee is the ability to pay your tax monthly – in smaller amounts, but more often.
Finally HM Revenue & Customs has listened to the voices calling for the ability to spread tax payments. Sadly the option will only be open to those whose tax payments are currently up-to-date and who will use a computer.
The new system allows you to make a regular tax payment by direct debit. It can be either a weekly payment or monthly one. There is an in-built flexibility allowing you to take a break from payments – whether for a week or two or for up to six months.
If you have previously enrolled for the Revenue’s online services – for example to file a tax return - then the direct debit scheme can be accessed online. Log into your account and select “direct debit payment” from the main menu.
The biggest weakness of this new weekly or monthly tax payment option is that you must be registered with HMRC’s online services. This denies access to the facility to some of the people who might need it most. If you have not used Self Assessment online before you will need to register.
Registering for the online services is not difficult. Go to www.hmrc.gov.uk and click on the self assessment link in the “do it online” menu. You will be given immediate access to direct debit online and they will send you an activation PIN through the post. You must activate the PIN within 28 days, otherwise you will lose access to self-assessment online and the direct debit payment option.
If you don’t want to get involved with HMRC’s online services, but do have online banking, there is another way to make monthly or weekly tax payments. Check out the back of a Self Assessment Statement of Account. It will show how to make a payment by internet banking. Simply follow those instructions but set up a regular payment instead of a one-off. I have done this myself in the past and the money arrives safely – it makes cash flow easier than large cheques twice a year.
If all this sounds too much like hard work, yet you have difficulty paying tax bills when they are due, then I have one final option for you. Open up a simple savings account which you promise yourself is just for tax. Then set up a transfer into it on a regular basis – for example £150 per month. Then when tax payment comes along you can use this money to meet or assist with the bill.
Of course the amount you save depends on a lot of factors, but anything saved towards a tax bill will be a help.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co – www.huston.co.uk or 028 9080 6080.