A comprehensive guide to HMRC payment plans

When January rolls around one of the most common questions we get is ‘Can you pay HMRC in instalments?’ The short answer is maybe, so let’s explore what HMRC payment plans are and how you can use them to manage a tax debt.

What is an HMRC payment plan?

An HMRC payment plan, also known as a budget payment plan or a Time to Pay arrangement is an agreement with the HMRC to allow you to spread your tax payments over a longer period than you would usually have. For example, you may have self-assessment income tax which is due in January 2025, but you can set up a direct debit by no later than 1^st April to pay monthly rather than paying all in one go by 31^st January.

How long will HMRC give you to pay?

It depends on the level of tax debt but typically companies and individuals can negotiate around 6 to 12 months.

Who can get an HMRC budget payment plan?

If you are an individual who owes up to £30,000 in self-assessment tax or a business owing up to £100,000 in PAYE, VAT or Corporation Tax you can apply for a budget payment online. You must not have any other current payment plans with HMRC and there are additional criteria to meet.

• For self-assessment, you must have filed your latest tax return and be within 60 days of the payment deadline.
• For employer’s PAYE contributions, you must have missed the deadline to pay, plan to pay the debt off within 12 months, the debt must be less than 5 years old and you must have sent all your PAYE/CIS returns.
• For VAT, you must have missed the deadline to pay, plan to pay the debt off within 12 months, the debt must be for an accounting period that started in 2023 or later and you must have filed all your VAT returns.

You’ll need to supply:

• the tax reference number for the tax you cannot pay, e.g. your unique tax reference number
• your UK bank account details (NB you must be authorised to set up a Direct Debit on this account)
• details of any payments you’ve missed and details of your financial difficulties.

How do you set up an HMRC budget payment plan?

It’s quite straightforward to set up an HMRC payment plan for self-assessment, PAYE, VAT or Corporation Tax online. Visit the following pages:

HMRC payment plan – Self assessment or call 0300 200 3820

HMRC payment plan – PAYE or call 0300 200 3810

HMRC payment plan – VAT or call 0300 200 3831

HMRC payment plan – Corporation Tax or call  0300 200 3845

If you cannot set up a payment plan online, you can call the HMRC payment plan helpline on the above numbers.

What about the interest charges on a payment plan?

Although HMRC will allow you to pay in instalments, they will charge you interest on the outstanding tax balance. HMRC interest rates are available on the gov.uk website.

Are there other terms and conditions of the Time to Pay arrangement with HMRC?

Time to Pay terms and conditions are dependent on the specific circumstances of the individual or business involved so there are no ‘standard’ agreements. HMRC will look at your financial situation, how much you owe and can afford to pay when coming to an agreement on your monthly repayment figure.

If you do not make your repayment on time, HMRC will contact you to find out why. You may be able to re-instate your arrangement but if you continue to miss payments, HMRC may use debt enforcement powers to collect what you owe.

Benefits of HMRC payment plans

Avoiding penalties

By setting up a payment plan, you can avoid late payment penalties and potential enforcement action from HMRC.

Improved cash flow management

Spreading tax payments over time can help businesses and individuals better manage their cash flow, especially during challenging financial periods.

Are there alternatives to HMRC payment plans?

Borrowing to pay tax bills

Depending on the rate of interest, it might be more cost-effective to take a person loan to pay your tax bill in full instead of getting a payment plan with HMRC.

You may be able to get a short-term overdraft or a business loan do you can pay HMRC what you owe.

Talk to HMRC

In a few cases, you may be able to negotiate with HMRC to temporarily suspend collection actions if you’re facing short-term financial difficulties due to unemployment, illness, or business problems.

Seeking professional advice

If you’re unsure about the best course of action, contact  our friendly team at Adams Accountancy. We’ve helped dozens of clients manage their tax affairs efficiently, reducing stress and avoiding fines. Contact us online, call 01322 250001 for a free chat about your tax affairs today or check out our FAQs.

Frequently Asked Questions about HMRC payment plans

Does an HMRC payment plan affect your credit score?

Usually, a budget payment plan will not affect your credit score. If you receive a County Court Judgement (CCJ) for unpaid tax, this will show on your credit history.

What happens if you cannot keep up with your repayments on an HMRC payment plan?

You should contact HMRC as soon as possible to discuss your situation with them as they may be able to extend your payment plan to make it easier for you to afford repayments.

Can HMRC debts be written off

It is unusual for tax debts to be written off but it is possible in specific circumstances. Speak to HMRC or ask your accountant to deal with HMRC on your behalf.