Loan or CC to pay £10k tax bill?

billymadbiker

Hi,
I have an outstanding tax bill of £10k I need to pay.
Having said that, hmrc are not chasing me for the money yet and they are currently charging me 3% on it..

So option one,
I am not sure if the 3% is a APR or a daily rate etc..
Is it worth leaving it unpaid for as long as I can.. Ie. until they send the 'demand to pay' letter?

Option 2,
Personal loan (unsecured) from my bank. Natwest. The online calculator ( rate may not apply though as I am self employed) shows an apr of 6.4% or a total charge of £660 if I repay in 2yrs. (r/p of £444 p/m)

Option 3, pay the £10k on credit card no.1.
hmrc will charge 1.4% for paying by credit card (£140.00)
Then transfer the lot over to my barclycard for another fee of 3.9% and use a 0%/18mths offer I have. Total cost of £395
I would have to repay about £580p/m to clear this before the 0% deal runs out.

Option 4,
Apply for a new credit card, with a £10k limit that offers a longer 0% deal for purchases, or offers a longer 0% deal and lower BT fee.
Not really sure what is available and if I am going to get one with such a high initial limit anyway.

On paper option 3 looks like the cheapest way to borrow the money. The problem is: I am not sure I will be able to make the payments needed every month. £250 would be fine. £400 should be possible without to much issue. Above this I may struggle some months as my work/income varies although I should be able to get to £500 if carefull

I could extend the personal loan to a longer term to lower the payments and then save any extra and maybe settle the loan early but as I am paying more intrest upfront it is going to cost me more.
I could pay as much as I can off the credit card and then, if I have not paid it all by the end of the 0% look at another BT or get a loan then to pay the CC off.

Any advice, even if it's only to check my maths! would be welcome!

grumbler

billymadbiker wrote: »

I am not sure if the 3% is a APR or a daily rate etc..

Looks like APR: http://www.hmrc.gov.uk/rates/interest-late-pay.htm

Is it worth leaving it unpaid for as long as I can.. Ie. until they send the 'demand to pay' letter?

This depends on how likely they are to send it.

Option 3, pay the £10k on credit card no.1.
hmrc will charge 1.4% for paying by credit card (£140.00)

Are you sure? I don't see a CC option: http://www.hmrc.gov.uk/payinghmrc/getright.htm#5

Then transfer the lot over to my barclycard for another fee of 3.9% and use a 0%/18mths offer I have. Total cost of £395
I would have to repay about £580p/m to clear this before the 0% deal runs out.

How can this be better than leaving it at 3% and paying directly to HMRC?

Option 4,
Apply for a new credit card, with a £10k limit that offers a longer 0% deal for purchases, or offers a longer 0% deal and lower BT fee.
Not really sure what is available and if I am going to get one with such a high initial limit anyway.

On paper option 3 looks like the cheapest way to borrow the money.

Yes

chattychappy

You've clearly been thinking it through, but I think you might have missed the fact that HMRC typically charge penalties as well as interest on late tax. The 3% is an annual rate and by itself represents a bargain. But take a look at this and see if it applies to you: http://www.hmrc.gov.uk/sa/deadlines-penalties.htm#5 Clearly the most efficient time to pay is just before the next penalty falls due. But even if you don't pay until just after a year late, you still will only have paid 5% x 3 + 3% = 18%. Not nice, but not horrific.

I think your best bet is to get a 0% purchase card, ideally just before the next penalty is due. In the meantime pay off what tax you can. Once you've put it on the CC, if you have trouble paying the minimums, and have BTs available, then do small BTs to (help) pay the minimums. Clearly this real plate spinning stuff. On the other hand, if you can pay more than the minimum, then don't. Keep the "extra" safe in case you can't meet the minimum next month. Having said that, always pay £1 more than the minimum to improve your credit rating.

One final thing. On self-assessment, if you estimate your liability for the current year will be lower than the previous year for some reason, then it might be possible to reduce the amount you must pay now (well should have paid in January). You just need to make a declaration to that effect. As you probably know, January includes an "on account" payment for the current year which is based on the previous year.

chattychappy

grumbler wrote: »

Are you sure? I don't see a CC option: http://www.hmrc.gov.uk/payinghmrc/getright.htm#5

It's on that link! Under "billpay"...

I've used this method - it is indeed 1.4%.

billymadbiker

The bill is the result of an investigation and various admendments to my last few returns so, although it has been showing on my account since Jan and they have not asked for it to be paid yet, I am half expecting a stroppy letter any day now!
I have paid off what i can so no savings as such apart from my normal business buffer.
Good point about the penalty', not sure when the first one will be due so I will check that.

I don't think next years bill will be any lower. If anything, I am going to have do do a lot more work to pay the existing bill!

chattychappy

Despite your run in with them, I've always found HMRC quite helpful on the phone. If you're in any doubt as to how they might apply penalties, it would be worth giving them a call.

billymadbiker

I will also say, they have been very helpful and, on a personal level, all very nice to deal with.
Still sucks though!

jamesml

Have you thought about asking them for a payment plan? Their willingness to help might depend on the reasons/issues in your returns though. I don't know if you could negotiate a payment scheduled with frozen penalties (unlikely but might be worth asking).

pacontracting

I'd always advise having the least to do with HMRC as possible. As you are self employed, it's obviously up to you to sort out our tax affairs but as part of running your affairs, you may charge VAT and have business expenses that you have claimed back.

The last thing you want is HMRC poking around in your VAT or your business expenses ( just from the hassle factor even if you are squeaky clean). ** apologies - just read your bill is as a result of them poking around.

As such, I wouldn't recommend asking for payment plan etc - just try to settle the bill. Obviously you will be incurring tax for the current year too so if you don't have the money for last years bill, you'll essentially be having to save twice (and it's surprisingly easy to get into this position if you need the money in a hurry for whatever life throws at you).

Again, as you are self employed, you may have issues getting some loans / credit cards so I would advise trying to find out what you can get at what rate and go for the lowest overall rate.

chattychappy

pacontracting wrote: »

I'd always advise having the least to do with HMRC as possible.

Disagree with your analysis. I've had inspections (PAYE, VAT) etc. I've never found calling up in a situation such as this has provoked any interest - except where you'd expect it to (eg when you tell them of an error). Sometimes it can be worth getting them around - I had an unsual situation where I wanted to destroy some goods on which I had reclaimed the input VAT. Called them up, bloke called back. The value was quite high so we arranged for an inspector came around. I showed him the stuff, spent about an hour destroying it whilst he sipped coffee. He wrote a receipt thingy. Off he went. No interest in anything else. Had I not called them up, there was always the risk that a subsequent (unusual) return would trigger an inspection and I wouldn't have been able to account for the goods.

Anyway, I digress. The OP has had his investigation. Agreeing what taxes and actually paying them are generally still kept as two separate functions. Problems paying/asking about the penalties for paying late aren't going to trigger any inspections in my experience. But I accept your experience might have been different.