What is a Budget Payment Plan?

In a nutshell, a Budget Payment Plan (BPP) is a voluntary scheme which offers a flexible approach to paying one’s taxes. Users can make advance payments towards their future Self Assessment tax bill before the deadline.

It’s designed to simplify the process for self-employed individuals, allowing them to manage their finances more easily and spread the cost.

How does it work?

Setting up a Budget Payment Plan allows you to:

Who can use a Budget Payment Plan?

The Budget Payment Plan (BPP) service is offered by HMRC to Self Assessment taxpayers.

To be eligible, you must be fully paid up when it comes to your past Self Assessment payments. This means you can’t have any still overdue.

What if I’m not eligible?

You won’t be able to use the Budget Payment Plan option if you still owe tax from previous Self Assessment returns, but you might be able to set up a Time to Pay arrangement instead.

HMRC will help you set up a payment plan based on what you can afford to pay for instalments. You might be able to set everything up online although you’ll need to speak to HMRC for older debts, or if the deadline has passed. Yes, that means speaking to them on the phone. With your voice. Out loud. Sorry.

How do I set up a Budget Payment Plan?

How do I decide how much to pay?

Instead of just picking a number, try and estimate what your Self Assessment tax bill will come to, and then use this information to help you decide.

To ensure you’re on the right lines (and to avoid making an application for an incompatible plan), it’s worth checking in with your accountant before you commit to anything.

What if I still owe tax?

The fact of the matter is that if the amount you’ve paid doesn’t cover all of your next bill, you’ll need to make up the difference before the deadline to avoid penalties.

Helpfully, though, you can pause payments for up to six months at a time if you need to, and it is possible to opt out of the plan if you find you can no longer afford it. In other words, you’re not trapped!

Still, it’s important to remember that while the BPP might be optional, tax liability itself is not. You will always have to settle your debts in the end.

If you are behind with your tax payments, you’ll need to bring these up to date before you can think about setting up a BPP.

Do I have to set up a Budget Payment Plan?

No, it’s completely optional and is simply meant to help make sure your tax obligations are met on time if this is something you’re worried about.

A Budget Payment Plan might be right for you, but equally, it might not.

One important consideration to make is that when you put money aside using a payment plan, you no longer have immediate access to it (though you can request a refund in extreme circumstances). Take a look at your cash flow forecast first!

What are some other options?

Well, you could obviously just set the money aside in a bank. This might be a more attractive option if you want to make sure you can access it whenever you need to. There’s also the possibility of you earning interest on it.

Alternatively, you could pay via your tax code, which might be an option if you have a source of Pay As You Earn (PAYE) income. You’ll need to submit your tax return before 30th December (so a bit earlier than the normal 31st January deadline).

Your employer will then deduct the tax you owe for self-employment from your wages, along with the other deductions they usually make. So if you don’t want them to know about your side hustle, this might not be the option for you!

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