PAYMENTS - 27.01.2005

Why pay if you don’t have to?

It’s the big personal tax payday on January 31. Do you really have to settle in full by this date? Is there any advantage in not doing so?

By February 28. The tax due for 2003/4 (but not any payment on account of 2004/5), really must be tackled before February 28, 2005. From that date the Taxman imposes a 5% surcharge, so you could view February as the month in which to sort out your finances without incurring a penalty. However, the outstanding amount will attract interest at (currently) 7.5%.

Debt collectors. After that, if you haven’t paid in full by March 1, 2005 you will receive a letter or call from the Taxman’s debt collector: the Receivables Management Service (RMS). They don’t care how your tax debt arose; their job is to just get the money in. They will even use distraint (turning up on your doorstep at dawn), or bankrupt you if they have to.

Tip. Don’t wait for the RMS to call. Ring them first and ask for time to pay your debt. The RMS have been instructed to “enable” all taxpayers to pay so they must listen to your story. However, be prepared for some direct questioning over the phone first…

Tricky questions.“Do you have any savings?” If you have savings which could be used to pay the debt in full, you will be expected to use them; whatever you were saving for, the Taxman thinks he comes first. “Couldn’t you borrow the money?” If you have other assets which you need to sell, or which you could use to borrow against, the RMS will consider an arrangement to delay collecting the debt (plus accumulating interest).

Tip. If you won’t be in a position to settle your tax bill by the end of February, suggest a plan to the RMS that will settle your debt within three months. Of course the three-month extension comes at a price: interest plus surcharges. To agree a longer payment period the RMS need to see full details of all your assets, expenditure plans and predicted income. This information is probably best kept out of the Taxman’s reach, even if his debt collector holds it.

Don’t wait for the Taxman to call if you don’t have to. You can ask for time to pay without giving a detailed justification but the price for this is interest and a surcharge.

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