Adrian Johnston: Tax – It pays to be prompt
Tax expert Adrian Johnston discusses the recent increase in interest rates on late tax payments by the HMRC, its potential impact on businesses and individuals, and the possible solutions like the ‘Time To Pay’ service that allows for customised payment plans based on individual financial circumstances.
Businesses and individuals alike are facing a potential new source of fiscal pressure after HMRC upwardly revised their interest rates on late payments of tax.
The decision, which comes in the wake of the Bank of England base rate increase, saw the new rate of 7.5% take effect from 11 July 2023.
And it will apply in various areas, including Income Tax, National Insurance Contributions, Capital Gains Tax and Corporation Tax.
Less than two years ago, the interest for tax paid late stood at 2.6% and it has now reached the highest rate since the start of the financial crisis in November 2008.
So it’s more important than ever not to leave tax unpaid. We know it’s not always easy to pay your tax liabilities on time and, while we advise that every effort is made to meet the payment deadlines, HMRC do offer some assistance. Those with outstanding tax liabilities may be eligible to receive support with their tax affairs through HMRC’s ‘Time To Pay’ service.
Under a ‘Time to Pay’ scheme, you can set up a payment plan with HMRC to spread the cost of your outstanding tax bill. There’s no standard arrangement and HMRC will look at your individual financial circumstances to establish what you can afford to pay and how much time you need to pay it. HMRC will also look at your income and expenses, savings, investments and any other assets and liabilities. You should establish your monthly disposable income and offer a bespoke plan to settle your liabilities.
Not only can ‘Time to Pay’ arrangements usually stop further penalties and surcharges being levied, they should also ensure that liabilities are not outstanding for longer than required which can minimise any interest being charged.
Where you are concerned about your ability to pay tax, the best advice is to initiate early contact with HMRC – it’s always better to be proactive.
At the same time, seeking support and guidance from professional services firms can also help ensure you meet your tax obligations in the most efficient way possible, and minimise the risk of hefty bills for late payment.
Adrian Johnston is tax manager at Meston Reid & Co.