Tips To Alleviate High Tax Bill Stress
November 1, 2024
If you are faced with the challenge of paying a high tax bill, you are not alone. Many successful small business owners and high earners find themselves in this position at some point; often a sign of growth, but still a difficult problem to deal with. The key is knowing how to manage the situation without disrupting your cash flow or business operations.
Here is a practical guide to help you manage that bill, reduce stress, and have strategies in place to prevent surprises in the future.
1. Understand Your Tax Bill
Take a close look at your tax return to understand the main drivers behind the high tax bill. Did your income increase unexpectedly? Were there deductions or reliefs you didn’t qualify for this time? Did you have fewer expenses than before? Remember, a rapid growth can push you into a higher tax bracket. Gaining insight into these specifics can help you plan more effectively for next year and identify any adjustments to your finances.
2. Check For Any Errors
It is always worth verifying your tax calculations to rule out any errors. If you have prepared the tax return yourself, a review by a professional accountant can help identify missed deductions or reliefs, missing overpayments, misclassified expenses, or even computational mistakes. This could reduce the high tax bill or, at least, give you peace of mind that the numbers are accurate.
3. Explore Payment Plans with HMRC
HMRC offers payment plans if you cannot pay the tax bill in full. Under their Time to Pay (TTP) arrangements, you can spread the tax bill over a period and pay in instalments. You will still incur interest charges. However, a payment plan can relieve pressure on your cash flow thereby allowing you to keep business as usual without having to pay the entire tax bill at once.
To explore the TTP arrangement, you need to contact HMRC’s payment support line to discuss your options, before the payment deadline. For a high tax bill on self assessment, you can set up a payment plan if you:
- have filed your latest tax return
- owe £30,000 or less
- are within 60 days of the payment deadline
- do not have any other payment plans or debts with HMRC
4. Prioritise Cash Flow
Tax is only payable on small business profits and any untaxed earnings. Generally, a high tax bill indicates increased profit levels. Therefore, insufficient funds would suggest cash flow problems which may include high personal spending.
It is important to keep your business cash flow in check while paying down a high tax bill. To achieved this:
- Maintain up-to-date accounting information to fully capture your income and expenses
- Prioritise essential expenses and reduce any non-urgent costs in the short term
- Follow up on clients with outstanding invoices, to speed up payments
A healthy cash flow will help ease the financial pressure while managing a large payment.
5. Plan Ahead for Next Year
Avoid unpleasant surprises by building a tax reserve where you can set aside a portion of your monthly income specifically for upcoming tax bills; including payment on account. This makes tax time much easier to manage, and having funds earmarked for taxes will prevent this year’s scenario from repeating itself.
If however, you are unable to maintain this regular savings for taxes, your finances, pricing, cash flow and possibly your business model may need to be reviewed by a professional accountant.
6. File Your Tax Return Early
Filing your tax return as soon as the tax year ends on 5th April will confirm your tax liability. This allows for more time to plan for the payment before the 31st January deadline. The tax reserves explained above can be used to adequately plan ahead for payment within the remaining months.
For employed high-earners, the P60 from the employer is usually available by the end of May following the tax year end. You can choose to pay your self assessment tax bill through your PAYE tax code if the tax bill is less than £3,000 and you file online by 30 December.
7. Get Professional Tax Advice
Navigating a high tax bill can be overwhelming, especially when you’re running a growing business. Seeking timely professional tax advice from an accountant can help you reduce the burden legally through tax efficient strategies specifically tailored for you and your business.
An experienced accountant can help you project future tax obligations, spot tax savings opportunities, maximise deductions and reliefs; so you are only paying what is necessary. This helps improve your overall financial health.
Final Thoughts
A high tax bill can feel daunting, but it’s manageable with a proactive approach and the right support. At Clarified Accounting, we help small business owners and high earners like you to understand and optimise their tax obligations with effective tax planning. This ensures you are prepared and equipped to handle whatever comes your way.
Contact us or book a consultation to avoid the high tax bill stress and stay ahead of next year’s tax season. We are here to help keep your business and personal finances healthy.
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