Huge Tax Bill - Very Naive - Need help - Struggling to keep head above water

WobblyJelly20981

Hello everyone, 

Please be kind because I know I'm terrible at finance and I don't know what to do. 

I just received my corporation tax bill and self assessment and I need to pay £14k by end of Jan 2025. This is just not doable in any shape or form. 

I'm self employed and last year I had a brilliant year! I had 7 clients and it was the first time in my life I had been comfortable financially. I put a little aside but my previous tax bills have always been in the 3k region so although I was doing better, I wasn't expecting much change. 

I also inherited a £200k house that has been fully paid off and have a tenant living there. 2023 was such an amazing year.

Fast forward to this year - I've lost 4 clients and I'm looking at losing my highest paid client at the end of the year due to an acquisition. This has drastically decreased my earnings. 

We also had to remortgage in the height of all the interest rate drama so have suffered an additional £850 per month. I had to also pay for some expensive car repairs and a big maintenance issue of £3000 at my rental property. 

We are really struggling to keep our head above water. I get £1000 from my property each month which I was planning on saving towards tax and its getting eaten by rising bills and all this stuff going wrong. 

I'm so worried - we have two young children. 

I guess I want to know what my options are - I'm so worried about asking for any help incase it goes against my credit score. 

I'm so grateful for the 200k asset I have - is there a way to pull money from it? I looked into equity release but that is for over 55s. 

FlorayG

I absolutely hate to say this but... could you increase the rent your tenants pay? Would the market rent for the area stand it? I know renters struggle too, but you have to look after Number One first

The_Unready

When does the tenant's contract end? Presumably you could look at evicting and then selling (although don't bank on the timescales for doing that).

Grumpelstiltskin

Forget your credit score, it is a made up figure.

You will have to concentrate on HMRC, they do not mess about and once they realize you have the house they will not mess around and they will go for bankruptcy.

I hope you are declaring your rental income to them as that is taxable as well as your earnings.

You say  'we' you have a partner / spouse?

Start with this thread and complete a honest SOA for both of you, format for MSE and copy and paste on here.

In Debt and Wannabe Debt Free? first Steps to take are here, please read, then ask questions. — MoneySavingExpert Forum

When we can see the full picture we can advise you the best way forward.

MattMattMattUK

WobblyJelly20981 said:

Hello everyone, 

Please be kind because I know I'm terrible at finance and I don't know what to do. 

I just received my corporation tax bill and self assessment and I need to pay £14k by end of Jan 2025. This is just not doable in any shape or form. 

I'm self employed and last year I had a brilliant year!

Self employed people do not pay corporation tax, Limited companies pay corporation tax, private individuals pay self assessment taxes. Is the business a Ltd, an LLP, or are you a sole trader? How do you remunerate yourself if you are not the latter?

WobblyJelly20981 said:

I had 7 clients and it was the first time in my life I had been comfortable financially. I put a little aside but my previous tax bills have always been in the 3k region so although I was doing better, I wasn't expecting much change. 

Corporation tax is 20% on profit (changing next tax year), income tax and National Insurance and dividend tax are based on income, how much profit did the business make, how did you remunerate yourself and at what level?

WobblyJelly20981 said:

I also inherited a £200k house that has been fully paid off and have a tenant living there. 2023 was such an amazing year.

There is no tax on inherence (although there may have been on the estate, that should have been paid by the estate, not by you). Have you been putting money aside from the rent to cover the tax on the rental?

WobblyJelly20981 said:

Fast forward to this year - I've lost 4 clients and I'm looking at losing my highest paid client at the end of the year due to an acquisition. This has drastically decreased my earnings. 

That impacts future earnings, not the past earnings which is what the bill for tax is for though.

WobblyJelly20981 said:

We also had to remortgage in the height of all the interest rate drama so have suffered an additional £850 per month. I had to also pay for some expensive car repairs and a big maintenance issue of £3000 at my rental property. 

We are really struggling to keep our head above water. I get £1000 from my property each month which I was planning on saving towards tax and its getting eaten by rising bills and all this stuff going wrong. 

I'm so worried - we have two young children. 

This is a separate issue, but it might be worth posting an SOA, there are always savings to be made.
https://www.lemonfool.co.uk/financecalculators/soa.php

WobblyJelly20981 said:

I guess I want to know what my options are - I'm so worried about asking for any help incase it goes against my credit score. 

Your credit score is a meaningless number, ignore it. 

WobblyJelly20981 said:

I'm so grateful for the 200k asset I have - is there a way to pull money from it? I looked into equity release but that is for over 55s. 

You need to get your finance under control, make sure you know where money is going, cut all unnecessary spending, work out how much you can pay now and how much you can pay between now and the end of January, then you will know what the shortfall is, from that point you can work out what options are going forward. 

Equity realease is almost always an awful option, if anything the best choice would be to sell the house, clear the debts and then potentially overpay your current mortgage or invest the remainder. 

WobblyJelly20981

FlorayG said:

I absolutely hate to say this but... could you increase the rent your tenants pay? Would the market rent for the area stand it? I know renters struggle too, but you have to look after Number One first

I tried to increase it earlier this year on the letting agents recommendation but they really panicked and practically begged me not to do it. I've started to heavily rely on their payment to get through the month so don't want to jeopardise losing it for any amount of time.

Grumpelstiltskin said:

Forget your credit score, it is a made up figure.

What do you mean? It was one of the key factors in our disgusting 6.29% interest only remortgage 

Grumpelstiltskin said:

I hope you are declaring your rental income to them as that is taxable as well as your earnings.

Yes this tax bill includes rental income and its the first time I've had it included in my self assessment which I think has been the major shock! 

You say  'we' you have a partner / spouse?

Yes I'm married and he earns good money but is in quite a bit of a credit card debt as we try and get through this year. He's also really worried about things generally - I haven't told him about this yet (will tonight - only found out today)  

MattMattMattUK said:

Self employed people do not pay corporation tax, Limited companies pay corporation tax, private individuals pay self assessment taxes. Is the business a Ltd, an LLP, or are you a sole trader? How do you remunerate yourself if you are not the latter?

Yes sorry so to clarify, the corporation tax bill is around 6k based on a 30k profit. I'm a limited company. And embarrassingly, I just remunerate myself with whatever is in my business acount. As mentioned previosuly, my overall self assessment and corporation tax bill has always been around £3-5k so I've always just made it work with any projects I pick up. I'm embarrassed to say that I had no idea its a flat rate of 20% agains profit. I'm so angry at myself. 

MattMattMattUK said:

There is no tax on inherence (although there may have been on the estate, that should have been paid by the estate, not by you). Have you been putting money aside from the rent to cover the tax on the rental?

I had no idea what the tax was like on the rental - I was hoping to just wait and see and thought after the several thousand pounds of repairs I've made on the property, I could put it against the tax.

You need to get your finance under control, make sure you know where money is going, cut all unnecessary spending, work out how much you can pay now and how much you can pay between now and the end of January, then you will know what the shortfall is, from that point you can work out what options are going forward. 

Equity realease is almost always an awful option, if anything the best choice would be to sell the house, clear the debts and then potentially overpay your current mortgage or invest the remainder. 

My god this has been such a wakeup call believe me! Now I've calmed down a bit and completing my SOA, I can probably meet a third of the amounts by the time the deadlines come round. Would this be more acceptable to HMRC. I just feel that selling off the house is going to be such a hasty move if there are other options out there. The property market isn't great either so I don't want to bank on it. 

Amounts are
6k Nov 2024 (corporation tax)
7.5 Jan 2025 (corporation tax + dividend tax)
1.5k July 2025 (not sure what this is - something else self assessment related) 

Grumpelstiltskin

Have you got an accountant?

I would hope so if you are a Ltd. company

Speak to them for advice.

Flugelhorn

1.5k July 2025 (not sure what this is - something else self assessment related) 

possibly a payment on account  for the next tax year - after you reach a certain amount they try to spread across more of the year and get you to pay some ahead of time so there isn't one big bill. 

FlorayG

I still think you should increase the rent - if they can't afford it and give notice to quit then you can re-let it at a higher rate. If they can't afford it and want to stay, there are various schemes to help them out. 

MattMattMattUK

WobblyJelly20981 said:

FlorayG said:

I absolutely hate to say this but... could you increase the rent your tenants pay? Would the market rent for the area stand it? I know renters struggle too, but you have to look after Number One first

I tried to increase it earlier this year on the letting agents recommendation but they really panicked and practically begged me not to do it. I've started to heavily rely on their payment to get through the month so don't want to jeopardise losing it for any amount of time.

Grumpelstiltskin said:

Forget your credit score, it is a made up figure.

What do you mean? It was one of the key factors in our disgusting 6.29% interest only remortgage 

Your credit score is a made up figure, it is meaningless. You have been charged 6.29% because A) your mortgage is interest only and you are seen as high risk.

WobblyJelly20981 said:

Grumpelstiltskin said:

I hope you are declaring your rental income to them as that is taxable as well as your earnings.

Yes this tax bill includes rental income and its the first time I've had it included in my self assessment which I think has been the major shock! 

You say  'we' you have a partner / spouse?

Yes I'm married and he earns good money but is in quite a bit of a credit card debt as we try and get through this year. He's also really worried about things generally - I haven't told him about this yet (will tonight - only found out today)  

Ok, so you need to work through finances together, the fact that you are both in debt indicates that you have both been living beyond your means and it appears by quiet a substantial amount. You need to fix this, so it will likely mean no meals out, no holidays, very limited "treats" etc. really bare bones, to get yourselves back on track. You can either fix this together, or you can crash the bus if you both try and do things separately. 

WobblyJelly20981 said:

MattMattMattUK said:

Self employed people do not pay corporation tax, Limited companies pay corporation tax, private individuals pay self assessment taxes. Is the business a Ltd, an LLP, or are you a sole trader? How do you remunerate yourself if you are not the latter?

Yes sorry so to clarify, the corporation tax bill is around 6k based on a 30k profit. I'm a limited company. And embarrassingly, I just remunerate myself with whatever is in my business acount. As mentioned previosuly, my overall self assessment and corporation tax bill has always been around £3-5k so I've always just made it work with any projects I pick up. I'm embarrassed to say that I had no idea its a flat rate of 20% agains profit. I'm so angry at myself. 

Corporation tax is 20% on profit, it is actually going up to 25% but with a taper for lower profits. You really need to stop taking the money out of the business account, you need to do things properly, you need to know what the profit is and only take that out, that means you also need to make provision for corporation tax. As your turnover increased are you VAT registered, if not were you over the £85k pa VAT threshold as you would need to be registered if not and how to you make provision to pay VAT? 

Do you run proper accounts for your Ltd, do you have an accountant?

In terms of your income there are benefits of paying yourself some PAYE every month and then remunerating the rest in directors loans which are converted to dividends at the end of the financial year, but there has to be enough post tax retained profit to do that. 

WobblyJelly20981 said:

MattMattMattUK said:

There is no tax on inherence (although there may have been on the estate, that should have been paid by the estate, not by you). Have you been putting money aside from the rent to cover the tax on the rental?

I had no idea what the tax was like on the rental - I was hoping to just wait and see and thought after the several thousand pounds of repairs I've made on the property, I could put it against the tax.

There is tax on rental profits, taxed at your nominal tax rate (so 20%/40%/45%). Some expenses are allowable, but not all, make sure you only claim for allowable expenses. 
https://www.gov.uk/guidance/income-tax-when-you-rent-out-a-property-working-out-your-rental-income

WobblyJelly20981 said:

You need to get your finance under control, make sure you know where money is going, cut all unnecessary spending, work out how much you can pay now and how much you can pay between now and the end of January, then you will know what the shortfall is, from that point you can work out what options are going forward. 

Equity realease is almost always an awful option, if anything the best choice would be to sell the house, clear the debts and then potentially overpay your current mortgage or invest the remainder. 

My god this has been such a wakeup call believe me! Now I've calmed down a bit and completing my SOA, I can probably meet a third of the amounts by the time the deadlines come round. 

You and your partner need to complete the SOA together, all of your expenses, both individual and joint. Do not do this by guessing, but by going through the last year's bank statements and working out what you spend money on. Things like holidays, meals out, new clothes unless essential, subscriptions apart from the basics etc. all need to stop. Work out the bare minimum you need to survive, add a small amount of luxuries, the rest goes on debt clearance. With regard to paying a third, yes and no, yes they will take the money, no in that they will want you to put a payment plan in place and they will charge you interest. 

MattMattMattUK

WobblyJelly20981 said:

You need to get your finance under control, make sure you know where money is going, cut all unnecessary spending, work out how much you can pay now and how much you can pay between now and the end of January, then you will know what the shortfall is, from that point you can work out what options are going forward. 

Equity realease is almost always an awful option, if anything the best choice would be to sell the house, clear the debts and then potentially overpay your current mortgage or invest the remainder. 

My god this has been such a wakeup call believe me! Now I've calmed down a bit and completing my SOA, I can probably meet a third of the amounts by the time the deadlines come round. Would this be more acceptable to HMRC. I just feel that selling off the house is going to be such a hasty move if there are other options out there. The property market isn't great either so I don't want to bank on it. 

Genuinely, why? Sentimental reasons? The idea of being a property owner? Rental property is going to be a lot less profitable and being a landlord is going to be a lot less fun over the next decade. You could cash in the £200k, invest it and get £8-10k a year with low risk, more if you were open to higher risks. 

WobblyJelly20981 said:

Amounts are
6k Nov 2024 (corporation tax)
7.5 Jan 2025 (corporation tax + dividend tax)
1.5k July 2025 (not sure what this is - something else self assessment related) 

You need to break this down properly, the company owes corporation tax, you owe dividend tax, the two are not interchangeable. That should come as part of your SOA. HMRC are a lot less open to payment plans from companies than they are from individuals so I would clear the corporation tax first, especially as you are liable for it as a director anyway as you have taken money out of the company that the company could not legally pay out.