July self-assessment tax deadline: What to do if you’re unable to pay HMRC bill

Nearly half of self-assessment taxpayers say they are struggling to keep up with their payments, as new figures reveal Britons will run up £51 billion in debt in order to meet the 31 July tax deadline.

Research from Credit Karma has found that 47 per cent of self-employed people are struggling to pay their tax bills, while 44 per cent will rely on personal debt in order to make HMRC repayments.

The situation has been exacerbated by the cost of living crisis which has put pressure on individual and business finances, according to the credit score checking company. 

Cost crisis: Rising inflation risks putting additional pressure on personal loan repayments taken out to meet the approaching tax deadline

The deadline for self-assessment taxpayers to make their second payment on account for the tax year ending the previous 5 April is on 31 July. 

According to Credit Karma, 43 per cent of self-employed people will be forced to cut back on essentials such as food to pay their bill.

In addition more than half (56 per cent) of those who have borrowed to meet repayments say they are worried about paying back debts. 

Even for those with sufficient cash set aside to meet the July deadline, they expect it to take nearly four months to recover from an average bill of more than £10,000.

Responding to the findings, Akansha Nath, head of partnerships at Credit Karma said: ‘The July deadline presents an unwelcome financial squeeze for many self-employed workers. 

‘This is one of the first self-assessment repayments due since Covid, where Government support, or the opportunity to defer, is no longer available. At the same time, many are suffering the effects of a cost of living crisis.

‘These tax repayments are not insignificant sums, and those who simply don’t have enough money in the bank to cover their bill next week should make sure they’re using credit responsibly – looking around for the best deals available, finding agreements where they can stay on top of repayments, and strengthening their credit score as much as possible to make credit cheaper and more accessible.’

What to do if you’re struggling to pay 

Experts say that financial education is still a pervasive issue among those who rely on self-assessment payments.

Andy Gibbs, head of group technical at small business accountants TaxAssist, told This is Money that the rise in borrowing is a worrying trend and ‘Suggests there isn’t proper engagement with HMRC in terms of understanding liability and flexibility with HMRC’.

‘Whenever someone owes anyone money the advice we would always give is to speak to that person or organisation,’ he said. 

‘So the first port of call if you have an immediate deadline is to speak to HMRC as soon as possible. They may be able to help you get a Time to Pay Arrangement in place and that can help prevent interest charges and late-payment penalty charges added to your bill.’

His advice is to get your tax return in as soon as possible as the payment is notional and may mean that you get a rebate further down the line.

But, he says, HMRC is currently under resourced and not always able to support taxpayers in the right way.

‘We would call for more support and help when the self-employed are struggling to pay, as well as greater flexibility from HMRC, such as willingness to enter into payment arrangements to keep businesses going and help hard working families.

‘We don’t feel HMRC has the resources to deal with what is happening at the moment, so we are calling for the Government to give more support to HMRC. 

‘Very hard-pressed customers need support directly from HMRC not accountants because accountants will charge.’

Ask for help: Tax experts say business owners struggling to pay their bill should contact HMRC as they may be able to put a Time to Pay Arrangement in place

Ask for help: Tax experts say business owners struggling to pay their bill should contact HMRC as they may be able to put a Time to Pay Arrangement in place 

Charities are also highlighting the ongoing impact of the cost of living crisis and Covid recovery on those who are self-employed. 

Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs Business Debtline, told This is Money: ‘While some small business owners may use credit or loans to cover business costs during quieter trade periods, relying on credit to meet tax deadlines may be a sign of financial difficulty.

‘It is important anyone worried about their finances has a clear idea of what they have coming in and going out. This will help make sure you do not spend more than you have coming in, and help keep your business costs and costs of living under control. 

‘Where possible, try to keep business and personal finances separate, so it is easier to stay on top of business and personal costs.’

The Association of Independent Professionals and the Self-Employed has also raised the issue of late payments to freelancers that further exacerbates their financial situation.

Research from the organisation reveals that one in five self-employed workers (20 per cent) have found themselves with no money to cover basic living expenses such as rent and bills after their customers or clients failed to pay them on time. 

Worryingly, nearly a quarter (23 per cent) have had to use their credit card or overdraft and a further one in five (21 per cent) have used up all or most of their savings as a result of a client not paying them on time.

IPSE is therefore calling on the Government to ban payment terms longer than 30 days.

Andy Chamberlain, director of policy at IPSE said: ‘We encourage all self-employed people to be as informed as possible about their finances and create good habits throughout the year to make any tax deadlines go that much smoother.

‘Self-employed workers also need to understand what they can and cannot claim through their business. 

‘This may seem obvious but including incorrect expenses that are not deemed “wholly and exclusively” for the purpose of your business will raise alarm bells with HMRC. 

‘If you are unsure about what you can claim, then there are lots of good accountants that can advise you.’

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