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Self Assessment may lead to financial distress

Self Assessment may lead to financial distress

Filling in a self assessment form by January 31st may not be the only problem many individuals, business owners and high net worth individuals face, according to recovery, restructuring and insolvency boutique mlm Solutions.

The firm states that many individuals are facing financial problems once they receive a tax bill on top of their existing historic liabilities.

Last year HMRC established a taskforce to target unpaid tax and it is utilising new software and computer systems to identify and locate individuals they believe owe tax for the current and previous years. In many cases, such as online selling, the individual may not even be aware that they are expected to pay tax.

Nikki Williams, director with mlm Solutions, explained: “A number of people filling out their annual tax return may suddenly find themselves under significant financial pressure because they are unable to pay their tax bill. They may have tax liabilities from earlier years of higher income which they have not budgeted for, or even worked out how much tax is due. They may also fall victim to HMRC’s new ‘Connect’ software which looks at all financial aspects of an individual’s life and checks where there may be some income or assets which have been missed in previous and current declarations.”

“A recent report found that the average non-mortgage debt of a family is £13,520 up from £9,520 in mid-2015. If you also own and run a business your debts are likely to be substantially higher. The long period of low interest rates and favourable lending has encouraged many individuals and business owners to borrow beyond what they can realistically pay back in the expectation that interest rates will never rise.”

Ms Williams added: “Equally those who may have had a higher than usual income a couple of years ago may now find they don’t have the savings to pay the tax liability. This too can cause individuals to fall into difficulty.”

“High net worth individuals can be asset rich but cash poor. They may own assets like property or other investments which cannot be converted to cash easily or quickly and therefore face liquidity problems. For these people, the six monthly tax bill can precipitate a cash crisis.”

Ms Williams continued: “This is also the first tax return to be completed since the Connect system became fully operational last year and the concern for many individuals and business owners is that they may not have accurately declared some of their income on previous forms and this may now come to light triggering an immediate, and unexpected, tax demand.”

“This new computer system can track those individuals who have sold assets but not declared the proceeds in previous years, or have rental income from properties, or have undertaken any transaction which incurs a tax liability. There is a growing concern that this may be the year when the taxman catches up with them.”

Ms Williams concluded: “HMRC is allowed to calculate the potential income due from undeclared assets and add interest and a penalty going back many years. For the Revenue it doesn’t matter whether the non-payment was accidental or intentional it is simply lost income. We are seeing many more individuals being presented with large tax bills covering periods of many years yet without the means to pay them. This is resulting in more individuals and businesses getting into financial distress. The key thing to do is to act before the Revenue acts. If you think you will be unable to meet your financial commitments when your tax bill comes in for the current or a previous year then now is the time to do something about it. You must take advice and consider your options before a demand letter comes through your door. It is better to be ahead of the Revenue than reacting to their demands.”

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