As a UK taxpayer, it is important to ensure that your taxes are paid on time and in full. However, a Self Assessment payment plan can help you stay tax compliant when you are unable to pay your personal taxes in one lump sum. In this blog post, we will explore how UK taxpayers can set up a tax payment plan with HMRC, and the consequences for late payment and tax avoidance.

 

What is a self assessment payment plan?

A tax payment plan is an agreement between a taxpayer and HMRC that allows the taxpayer to spread their tax payments over a longer period. This can be helpful if you are unable to pay your taxes in one go, as it can provide you with more time to manage your finances. However, it is important to note you will have to contact HMRC and arrange a payment plan before the original payment deadline.

HMRC also has specific schemes in place for disclosing income which should have been taxed but which was not declared. To learn more, you can read our posts on the Let Property Campaign for undeclared rental income and the Worldwide Disclosure Facility for offshore tax liabilities.

 

How much will I pay on a self assessment payment plan?

The amount you will be asked to pay each month depends on how much you have left after your fixed expenses like food and rent. It is common for HMRC to ask you to repay half of what you still owe each month, leading to decreasing payment amounts each month.

There is no limit on how long a payment plan can last. However, you are incentivised to repay as quickly as possible to reduce the interest being paid on top of the outstanding tax. HMRC charges interest on late payments at base rate plus 2.5%.

 

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Who is eligible for a self assessment payment plan?

Both individuals who owe ta from Self Assessment and employers’ who owe PAYE contributions can set up self assessment payment plans. However, they each have their own set of requirements.

If you owe tax from Self Assessment

You will only be able to set up a payment plan if you:

  • Have filed your latest tax return.
  • Owe less than £30,000.
  • Are within 60 days of the original payment deadline.
  • Do not have any other payment plans or debts with HMRC.

If you owe employers’ PAYE contributions

You will only be able to set up a payment plan if you:

  • Owe less than £15,000.
  • Are within 35 days of the original payment deadline.
  • Plan to pay off your debt within the next 6 months.
  • Do not have any other payment plans or debts with HMRC.
  • Have submitted any employers’ PAYE submissions and Construction Industry Scheme (CIS) returns that are due.

What do you need to set up a tax payment plan?

To set up a tax payment plan with HMRC, you will need to provide certain information. This includes:

  • Your tax reference number (which can be found on previous tax returns or other correspondence from HMRC).
  • The amount of tax you owe, including any interest and penalties.
  • Details of your income and expenses, including any other debts you have.
  • Your bank details.

You will also need to provide a reason why you are unable to pay your taxes in one lump sum, such as financial difficulties or unexpected expenses.

 

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What are the consequences of not paying tax owed to HMRC?

If you do not pay your taxes owed to HMRC, you may face serious consequences. These can include:

  • Interest and penalties being added to the amount you owe.
  • Legal action being taken against you, including the possibility of court action and seizure of assets.
  • Your credit rating being affected.
  • Difficulty obtaining credit or loans in the future.
 

HMRC has several ways they will use to recover outstanding tax, such as:

  • Ask a debt collection agency to collect the money.
  • Collect what you owe directly from your wages or any monthly pension payments you get.
  • Take things you own and sell them (if you live in England, Wales or Northern Ireland).
  • Take money directly from your bank account or building society savings (if you live in England, Wales or Northern Ireland).
  • Take you to court.
  • Make you bankrupt.
  • Close down your company if the tax is a business tax.

It is therefore important to ensure that you pay your taxes on time and in full. Failing that, it is essential to reach out to HMRC before the payment deadline to arrange a payment plan and avoid unnecessary penalties.

 

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