Think I need a loan to sort my debts, would like some advice

XJM · 9 December 2016 at 1:24PM

I've just had a higher-than-expected tax bil, and it looks like I will need to take out a loan to cover it as I doubt any payment plan that will satisfy the revenue would allow me to pay next year, or really do much of anything. I'm new to contracting and never heard of payment on account before.

They want about £12,000 by the end of Janaury and another £3000 by July. I also have a careers development loan to pay, which is on course to be paid off come September or so, plus I am paying off a credit card at about £6000. That is on 0% interest until March, I was previously planning to transfer to another no interest card to continue paying it off.

What should be my strategy paying this off? I was thinking perhaps I should pay off the career development loan with the new one to reduce the number of payments I make each month. Should I just transfer the credit card debt to another card, or extend the loan to pay that off, again reducing my monthly outgoing but putting interest charges on the sum.

I'm already looking over my budget, and will be working through my own limited company for a better tax situation going forward.

sourcrates · 9 December 2016 at 1:33PM

Ok, take a step back here.

Borrowing money to pay a tax bill is just ludicrous and shear madness.

Your strategy should be to think with a clear head, you need to write to the tax man and see what kind of repayment plan they will accept, the bill cant of been that much of a surprise, everyone knows tax must be paid, and by when, even if your not self employed, its advertised enough in the media when self employed tax has to be paid by.

I dont think borrowing to pay a tax bill makes any sense whatsoever, and i`d advise very strongly against doing so.

ratrace · 9 December 2016 at 2:05PM

Dont want to come across as nosey but £12,000 + £3,000 in taxes means that you must have made a decent amount of money in the tax year where has it gone, its over £1,000 a month you should have set a savings account and paid that amount in each month

you need to do an soa to see all your outgoings and where you have been overspending so you can make cut backs

dont take this the wrong way we are not criticising, but trying to help

XJM · 9 December 2016 at 4:53PM

I'm not really sure where it's gone, I'm already looking into it, I don't live an extravagant lifestyle outside of living in London. I usually have a spare £600-700 a month but I recently moved which bit into it. Plus I didn't know about payment on account, so I'm being asked for a few thousand more than I planned.

What sort of timeframe would HMRC be willing to accept? I don't know if I could pay it off in a year without compromising my ability to pay in the next, even when I go into a more tax efficient limited company. Or would they be willing to discuss payment over 2-3 years?

EssexHebridean · 9 December 2016 at 8:31PM

Yes, payment on account is a pain in the proverbial. They're quick enough to penalise you if you're late paying, but offer nothing for holding onto your money for 6 months plus!

Do you think realistically that the £12k is a fairly accurate representation of 50% of your tax for the 16/17 tax year? I take it you have been putting aside the relevant proportion of your earnings until now, so if it is then I assume you have a fair percentage of the amount they are asking for?

Your options are - as said above, to approach them about a payment plan, or if you don't feel it's accurate, you can ask them to recalculate. Having said that though from memory I think you need to do that when you originally see the figure on completion of your tax return ideally. (And note for when you do your next return in April - take notice of the figures it throws up!)

Think I need a loan to sort my debts, would like some advice

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