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Self-assessment advice: How to pay your personal tax liability and managing Time to Pay arrangements

Once you’ve filled in your self-assessment tax return, you’ll receive a tax bill. If you submit your tax return online, you’ll be able to see it online; if you submit a paper return, you’ll receive it by post. It’s important to pay your tax liabilities on time. However, if you cannot meet these deadlines or pay the tax bill, options are available to help manage your situation. This article will explain what ‘balancing payments’ and ‘payments on account’ are and guide you through the process of paying your personal tax liability through various modes of payment as well as how to set up a ‘Time to Pay’ arrangement with HM Revenue and Customs (HMRC) if you’re unable to pay your tax bill in full.

Your tax bill includes the tax you owe for the previous year, called ‘balancing payment’, and an additional payment towards your next year’s bill, called ‘payment on account’.

What are ‘balancing payments’ and ‘payments on account’?

A balancing payment is the amount of tax owed to HMRC for the tax year after taking into account any tax already paid through PAYE (Pay As You Earn) or self-assessment. It is usually due by 31st January following the end of the tax year.

Payments on account are advance payments towards your tax bill for the following year. They are based on your previous year’s tax bill, and you are required to make two equal payments on account, each due on 31st January and 31st July. These payments are intended to spread the cost of your tax bill over the year and are adjusted based on your actual tax bill for the year.

To check payments on account already made and those due, you can log in to your HMRC online account, where you can view your tax account and payment history.

If you believe your payments on account are too high, you can apply to reduce them. This might be the case if your income has decreased or you have significant expenses that reduce your tax liability. You can do this by logging in to your HMRC online account and filling in the ‘Reduce payments on account’ form or posting form SA303 to your tax office.

If you overpay tax to HMRC, you can request a refund of the overpaid amount. This can be done by submitting a claim using the online form on the HMRC website. If you underpay tax, you will be required to pay the outstanding amount plus interest and penalties. HMRC will notify you of the amount owed and the payment due date. If you cannot pay the full amount, you can contact HMRC to discuss a payment plan.

How to pay your tax liability to HMRC?

You can use the following methods to pay your tax bill:

Direct Debit

Set up a Direct Debit through your HMRC online account. You can also set up a Budget Payment Plan for weekly or monthly Direct Debit payments towards your next year’s tax bill. Your 11-character payment reference, which is your 10-digit Unique Taxpayer Reference (UTR) followed by the letter ‘K’, is required. You can find this in your online account or paying-in slip if you receive paper statements. Payment processing time is 5 working days for a new direct debit set up and 3 working days if a direct debit is already set up and the same bank details are used.

Online or telephone bank transfer

You can pay your self-assessment bill using Faster Payments, CHAPS, or Bacs. Make sure to use your 11-character payment reference when you pay. Payments usually reach HMRC within the same day or the next day (including weekends and bank holidays) for Faster Payments, the same working day for CHAPS if you pay within your bank’s processing times, and 3 working days for Bacs. Payments from overseas may take longer. Payments using your online or mobile bank account are instant but can take 2 hours to show up in your online account.

Personal Debit or Corporate Debit/Credit card online

You can pay online using personal debit card or corporate debit or credit card. Note that there’s a non-refundable fee for corporate debit and corporate credit card payments, and you cannot pay by personal credit card. Again, use your 11-character payment reference when paying. HMRC accepts the date payments are made through cards, including weekends and bank holidays.

At your bank or building society

Pay by cash or cheque at your branch, but only if you still receive paper statements from HMRC and have the paying-in slip they sent you. Write your 11-character payment reference on the back of the cheque. HMRC accepts the date payments are made this way as long as they are paid Monday – Friday.

By cheque through the post

Send a cheque by post to HM Revenue and Customs, HMRC, Direct, BX5 5BD. Make the cheque payable to ‘HM Revenue and Customs only’ and write your 11-character payment reference on the back. Payments through cheques should process within 3 working days. If you have an HMRC payslip, include it with your cheque. If you don’t have a payslip, you can print it. This option is not available for payments at a bank or building society.

Pay weekly or monthly

Set up a Budget Payment Plan to make regular monthly or weekly payments towards your next tax bill. You must be up to date with your previous self-assessment payments to use this option. To set up a Budget Payment Plan, log in to your HMRC online account, set up a Direct Debit, and choose the Budget Payment Plan option.

Through your tax code

You can pay your self-assessment bill through your PAYE tax code if you meet the following three conditions:

  • owing less than £3,000 on your tax bill
  • already paying tax through PAYE
  • submitting your tax return on time (31 October for paper returns and 30 December for online returns)

You cannot pay your tax bill through your tax code if:

  • your PAYE income is not enough for HMRC to collect it
  • it will result in you paying more than 50% of your PAYE income in tax
  • it will result in you paying more than twice as much tax as you usually do
  • you owe less than £3000 after making a part payment to reduce the £3000 or more you owed initially

To check if your payment has been received, view your HMRC online account, which should show your payment as paid between 3 to 6 working days later.

If you cannot pay your tax bill on time

If you’ve missed a tax deadline or know you won’t be able to pay a tax bill on time, contact HMRC as soon as possible. If you cannot pay your tax bill in full, you may be able to set up a payment plan to pay it in instalments, known as a Time to Pay arrangement. However, HMRC must believe that you can keep up with the repayments; otherwise, they’ll ask you to pay the amount owed in full.

Setting up a payment plan

To set up a payment plan, you’ll need the relevant reference number for the tax you cannot pay (e.g. your unique tax reference or UTR number), your bank account details, and information on any previously missed payments. Depending on the type of tax you owe and the amount, you may be able to set up a payment plan online.

Eligibility for online payment plans

For self-assessment tax debts, you can set up a payment plan online if you:

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

For employers’ PAYE contributions, you can set up a payment plan online if you:

  • Owe less than £15,000
  • Are within 35 days of the payment deadline
  • Plan to pay your debt off 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

If you cannot set up a payment plan online

If you can’t set up a payment plan online, you’ll need to contact HMRC. They will ask about your ability to pay in full, your monthly repayment capacity, other taxes you need to pay, your income, monthly expenses, and any savings or investments you have. HMRC may expect you to use any savings or assets to reduce your debt as much as possible.

Time to Pay arrangement details

The amount you’ll be asked to pay monthly will depend on your remaining income after covering essential expenses. Typically, you’ll be asked to pay around half of your remaining monthly income towards your tax debt. However, you can agree to pay more if you wish.

There’s no time limit on how long a payment plan can last, depending on the amount you owe and your monthly payment capacity. It’s crucial to contact HMRC if any changes occur that could affect your payment plan, as they may adjust the repayment terms accordingly.

Missing a payment and the consequences

If you miss a payment, HMRC will contact you to discuss the issue. They may try to rearrange or renegotiate the payment plan if possible. If you cannot pay another tax bill, contact HMRC, as you may be able to include the new tax bill in your Time to Pay arrangement.

If you do not contact HMRC or refuse to pay, they may take actions such as using a debt collection agency, collecting the debt directly from your wages or pension payments, seizing and selling your assets, taking money directly from your bank account or building society savings, taking you to court, making you bankrupt, or closing down your company if the tax is a business tax. Any additional costs, like auction fees, are typically added to your debt. HMRC will inform you before taking these actions and explain your rights, costs, and options.

Help and advice

Money Helper can provide information about debt management and where to get free advice if you’re in England or Wales. For those in Scotland, free debt advice is available from Scotland Debt Solutions. In Northern Ireland, free debt advice can be obtained from Advice NI.

Making a complaint

While you cannot appeal against HMRC’s decision, you can make a complaint if you’re unhappy about how you were treated during the process.

Conclusion

Paying your personal tax liability on time is essential, but if you find yourself in a situation where you cannot pay, there are options to help you manage the situation. Contacting HMRC as soon as possible and setting up a Time to Pay arrangement can alleviate some of the stress and potential penalties associated with unpaid tax debts. Be proactive in managing your tax obligations and seek advice from a qualified tax advisor or accountant if needed.

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