You’re expecting a sizable self-assessment tax bill for 31 January 2020. How and when can you reduce this, and if you can’t how can you manage the payment in the most cost-efficient way?

HMRC’s pound of flesh

If you’re late paying either of your January or July instalments of tax, HMRC will charge interest at 3.25%, no ifs or buts and no matter how good your reasons. That’s bad enough, but it’s HMRC’s late payment penalties that can really hurt. More about these later, but there’s another thing to consider first.

What’s the worst HMRC can do?

HMRC often, but not always, uses commercial debt collection agencies and can take possession of your goods without a court order. It has wide powers over goods: it can enter premises and list goods for seizure. These can include items you need for your business, if nothing else is available.

Is the bill too high?

The first thing to bear in mind is that the January 2020 self-assessment payment is a combination of any tax you still owe for 2018/19 and an estimate of 50% of your 2019/20 tax. As with any estimated bill there’s room for manoeuvre.

Tip. If you think your overall tax liability for 2019/20 will be less than that for 2018/19, you can reduce the estimated part of your self-assessment tax bill for 31 January 2020. This will automatically also reduce the payment due at in July.

Time to pay

If, once you’re sure that your January 2020 tax bill is as accurate as it can be, you aren’t able to pay it in one go, HMRC will usually agree payment by instalments. These are called time to pay (TTP) arrangements. There’s no automatic right to TTP. HMRC gives guidelines on when it will agree, but be prepared to be persistent in your request.

Tip. Before you contact HMRC get your facts straight, and have details of your income and expenses to hand. If you have a special reason for not being able to pay, i.e. something outside of your control, such as severe flooding, have your explanation ready. Get all the facts in first time because adding to your story later makes it sound like a lame excuse. If you receive a negative response, ask for your case to be reviewed by someone higher up.

How much time?

HMRC’s leeway can be limited. You may get just a couple of months and at the most a year to pay. Start the ball rolling by phoning the Self-Assessment Payment line on 0300 200 3822, if you’re applying after the due date. If you’re applying before the due date, which is always sensible, call the Business Payment Support Service on 0300 200 3835.

Penalties – older tax first

If you still owe tax for 2017/18 (the final payment of this was due on 31 January 2019) you will have already incurred late payment penalties. The next penalty arises on 31 January 2020 and is 5% of the tax still owing. However, if you agree TTP before then HMRC will usually not charge the penalty.