In an ideal world, you’ll be able to set money aside throughout the year so that paying your tax bill doesn’t put such a large dent in your cash flow or budget. Unfortunately, the world of self-employment and business ownership doesn’t always run according to plan.
If you regularly find yourself struggling to pay your tax bill in one swoop, you might be wondering if you’re able to pay it in instalments instead, to help spread the cost.
Here, we answer that question and explore what options you have if paying your tax bill in full isn’t possible.
Will HMRC let me pay my tax bill in instalments?
You’ll normally need to pay your tax bill in full (or make payments on account) before the deadline set by HMRC. That said, it’s up to you whether you pay everything in one go, or in a series of instalments leading up to the due date.
Fortunately, there are support mechanisms in place to help those who can’t meet the tax payment deadline. We know that dealing with HMRC can be a daunting prospect but they’re usually willing to find a solution that works for you. After all, their aim is to collect tax, so it’s only sensible that they try to find some flexibility!
If you’ve missed a payment deadline or you know you’re not going to be able to pay your tax bill in full, one of the most common solutions is to organise a Time to Pay (TTP) arrangement.
Time to Pay arrangements
A Time to Pay arrangement is a flexible payment plan that enables taxpayers to pay their tax bills in instalments over an agreed period of time, even beyond the original payment deadline. The payment plan can also include any penalties and interest.
Payments are usually made via direct debit over a 12-month period, although the length of a Time to Pay arrangement depends on individual circumstances – they can be longer or shorter to accommodate what you can afford.
A Time to Pay arrangement is available for any qualifying individual or business struggling with paying Income Tax, Corporation Tax, VAT, Capital Gains Tax, or other types of tax.
There aren’t specific criteria to qualify for a payment plan, but HMRC will want a reasonable explanation for why you need one. They’ll also ask for information about your expenses and projected income to make sure that the agreement is affordable (and likely to be paid off).
Having a previous arrangement doesn’t mean you are exempt from arranging one again in the future.
Setting up a Time to Pay arrangement
If you’re registered for Self Assessment you might be able to set up a Time to Pay agreement online as long as:
- You owe £30,000 or less
- Your tax returns are up to date
- You aren’t using any other payment plans with HMRC
- You don’t have any other debts owed to HMRC
- It is less than 60 days after your payment deadline
If you don’t meet the criteria above, or if you are a business registered for Company Tax Returns, you’ll need to contact HMRC by phone to arrange your payment plan. Details you should have to hand, ready for your call, include:
- Reference number of the outstanding tax bill(s)
- The full amount of tax (all debts) you’re struggling to pay in full
- An explanation for why you cannot pay in full and what efforts have been made to attempt paying in full before proposing a Time to Pay arrangement
- An overview of your current financial situation and how you predict it will change moving forward
- Bank account details to get your payment plan set up
The Budget Payment Plan
HMRC also offer Budget Payment Plans, specifically designed to support those who know they’re going to have trouble paying their tax bill in full when it’s due.
- It enables taxpayers to make weekly or monthly payments towards their next bill, which means there will be less to pay when the annual deadline rolls around.
- If you set up a Budget Payment Plan, you can choose how much you want to pay and how often, putting you in full control.
- If your advance payments don’t cover the tax owed on your bill, you can simply top up your tax pot with a more manageable amount.
- If the weekly or monthly payments surpass what you owe in tax, you can easily request a refund for what you have in credit from HMRC.
The Budget Payment Plan is available to those paying Income Tax, Corporation Tax and VAT, as well as some other types of tax.
What happens if you don’t pay a tax bill on time?
Unfortunately, failing to make tax payments on time without an agreement already in place usually means you’ll receive a financial penalty. There may also be other associated fines and interest you’ll be required to pay if your tax bill remains unpaid.
HMRC’s late payment penalties are currently set at the following rates:
- 5% of the tax owed – once the payment is over 30 days late.
- An additional 5% of the tax owed – once the payment is more than 6 months late.
- A further 5% of the tax owed – once the payment is more than 12 months late.
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