You’ve had your Christmas party, the office secret Santa and even your family Christmas. By now, you’re probably sick of the sight of mince pies and are looking forward to the normality of January. New Year is a time to set your goals, and figure out how to achieve them.
Unfortunately, as you well know, New Year also means tax bills for many UK businesses. We all dread that email from the accountant that signals the total bill and the small amount of time in which you have to pay. No matter how well you’ve prepared, it’s always a hard payment to make. Many small business owners will struggle this New Year to pay their tax bills. If this is you, let’s talk about your options.
Don’t delay paying your tax bills
HMRC are coming down hard on businesses who aren’t paying their tax bills, whether it’s because they are trying to avoid it or that they simply cannot pay. If you are struggling to pay your tax bill this year, do contact HMRC to talk through your current position. Be aware that if you don’t pay your bill on time, you’ll probably have to pay interest on the outstanding amount. You may also be asked to pay a penalty or surcharge. The key takeaway here is to be pro-active, don’t want until reminder lessons are being sent to you! Make a plan, before it’s too late.
What are the implications if you don’t pay?
HMRC may take ‘enforcement action’, which means that they could take what you owe through debt collection agencies, take you to court, or close down your business. Of course, you could be lucky and get away with a slap on the wrist, but it really isn’t worth taking the risk in the first place.
HMRC are in a position to send you a wind-up order or liquidate your business, so delaying payment is a big risk. It’s also worth knowing that many lenders will refuse to lend to you if you have an outstanding tax bill, limiting your options if you need to take out a loan.
What can you do about it?
Firstly, make a plan. Take a look at your finances — can you afford your bill? And if you are in the fortunate position of being able to pay it in full, will you be left with enough working capital for emergencies?
For example, if you’re a restaurant and your oven breaks down over the New Year, do you have enough working capital to replace or repair it quickly? Equally, if you’re waiting on an invoice to be paid to be able to pay your tax bill, it’s worth having a backup plan. It’s the time of year where financial controllers could be on holiday, and invoices could end up being paid later than expected. You don’t want to be left with a late payment fine as a result of this!
If you’re unable to pay your tax bill, then it’s time to look at all of your options. You could talk to your bank, and see if they are able to offer you an overdraft or a short term loan. Typically, these sorts of bills do creep up on you and you’re not left with much time to sort out finance. It might be worth looking into alternative sources of finance, other than your bank, who often have much shorter turnaround times.
Types of alternative finance that could help
Short term loan – This is quite simply a loan that has a ‘term’ – this means that you know how much you’re borrowing, and how long you have to repay the loan. This could be anything from a few weeks to a few years, so you can work with the lender to take a loan that meets your requirements.
Bridging loan – A bridging loan acts as a ‘bridge’ between one event and another. It might be that you know you have an outstanding invoice owed to you — the loan would act as a bridge between now and receiving that payment.
Overdraft alternative – An alternative overdraft is a new innovation in Alternative Finance. You can agree a limit with a lender that you can access, and you only pay interest on what you use. So if you don’t need to dip into the overdraft, it’s unlikely to cost you anything, but it gives you the security to know that the money is there if you do need it.
Invoice finance – If you have outstanding invoices, invoice finance gets the cash in your bank account before your customer has paid. This will leave you in the advantageous position of having the funds in time to pay your tax bill and avoid any late penalties.
Cashflow finance – Cashflow finance is a new type of term loan, sometimes called a revenue loan. This sort of loan lets you make repayments as a fixed percentage of your revenue, allowing you to pay back your loan in an affordable way that correlates with your trading peaks and troughs.
It’s always a shock to get your tax bill from your accountant. No matter how much you prepare for it, it’s going to be a bit painful paying it. The best thing is to be prepared for it, and try to plan ahead as best as possible. It’s also worth having a backup if you’re relying on invoices being paid to pay your bill.
Unfortunately, it’s the time of year where invoices are more easily missed, especially if your customers’ financial controllers are on holiday! If you don’t have enough cash to pay, first talk to the HMRC to avoid any wind-up orders. The next best step is to look at your options to borrow the money for it, and pay off the money borrowed in a way that works for you and your business.
Images “ Tax Paid Meaning Taxes Duty And Paying / Shutterstock.com“
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