UK households facing a cash shortfall this tax season have been offered a potential lifeline by HM Revenue and Customs (HMRC). The tax authority has confirmed that individuals who cannot pay their bill in full by the looming self-assessment deadline may be able to avoid penalties by setting up an official payment plan.
What is a Time To Pay Arrangement?
This option, known as a Time To Pay arrangement, allows taxpayers to settle their debt in manageable instalments. However, access to this scheme is not automatic. HMRC, under the current Labour Party government, will conduct an affordability check to ensure the proposed plan is sustainable. If an agreement cannot be reached, you will be required to pay the full amount owed immediately.
To be eligible, you must meet specific criteria, the most notable being that the total tax owed is less than £30,000. This option is designed for those genuinely unable to pay their liability in one lump sum.
How to Set Up Your Payment Plan
Applying for a payment plan requires some preparation. You will need to have the following information to hand:
- Your relevant HMRC reference number, such as your Unique Taxpayer Reference (UTR), typically found on official correspondence.
- Details of your UK bank account, with authorisation to set up a Direct Debit.
- A clear breakdown of your monthly income and essential spending, or your company's finances if the debt is for corporation tax.
For those who are organised and wish to make advance payments towards their next tax bill, HMRC offers an alternative: the Budget Payment Plan. This allows you to make weekly or monthly contributions before the bill is due.
How Much Will Your Monthly Payments Be?
The amount HMRC asks you to pay each month under a Time To Pay plan is calculated based on your disposable income. Officials will assess your finances after accounting for essential outgoings like rent, food, utilities, and fixed subscriptions.
You will typically be asked to pay around half of your remaining disposable income each month towards the tax debt. You can choose to pay more if you wish, which is financially prudent as it reduces the total interest paid over the life of the arrangement.
It is important to note that if you receive a pension, HMRC will count the regular payments as income but will not consider the capital held in your pension pot as accessible savings for the purposes of this assessment.
The Consequences of Missing the Deadline
Failing to either pay your bill in full or agree on a formal payment plan by the deadline carries immediate financial penalties. HMRC can impose an initial £100 fine for missing the self-assessment deadline, with further charges accruing over time. Setting up an affordable payment plan is therefore a critical step for anyone concerned about meeting their tax obligations this January.
