Filing your tax return and paying your tax bill on time are essential if you’re hoping to stay out of trouble whilst managing things like cash flow, budgets and expenses. But if your cash flow takes a hit, what happens if you’re having problems paying the tax you owe? Let’s take a look at HMRC Time to Pay arrangements.
When do I need to pay my tax bill?
The deadline for paying your tax bill depends on what sort of tax return you need to send. It’s pretty straightforward for Self Assessment tax returns because everyone needs to pay their tax bill by 31st January.
How does that work?
We’ll give you an example. You need to submit a tax return for the 2023/23 tax year (which starts 6th April 2023 and ends 5th April 2024). The deadline to submit your tax return and pay the bill is 31st January 2025.
What about limited companies?
Tax deadlines are a bit trickier for limited companies because one company might have completely different dates to another. It’s because companies submit Company Tax Returns and pay Corporation Tax according to their financial year, so it all depends on when you registered the business.
Plus, as a bonus complication, the deadline for paying a company’s tax bill is earlier than the deadline for submitting its tax return.
What happens if I can’t pay my tax bill?
The key to this is communicating with HMRC. If you just do nothing and the deadline passes without any action on your part, HMRC will automatically issue a late payment penalty, as well as adding interest to the amount you owe – all of which needs to be paid on top of the original bill.
So, if you think you’ll struggle to pay your tax bill on time, the best thing to do is let HMRC know ASAP. It’s in their job to collect tax, so it’s in their best interests to help you find a way of paying – even if that means it takes a little longer. This is where a Time to Pay arrangement might be available.
What is a Time to Pay arrangement?
Time to Pay arrangements are an initiative put in place by HMRC to help those who are struggling to pay their tax bill on time.
It’s basically an official payment plan between you and HMRC that enables you to pay your tax bill in smaller monthly installments, rather than larger lump sums.
How long is a Time to Pay agreement and how much will I pay?
Time to Pay arrangements are designed to be flexible, so the terms of any agreement you come to will take on board your individual circumstances and how much you (or your business) can realistically afford to pay each month.
HMRC will conduct an ‘income and expenditure’ assessment to calculate this, so you’ll need to supply them with:
- Your personal details
- Personal details of any dependents you have
- Information about your personal and household monthly income and expenditure
- Your UTR number
The other great thing is that a Time to Pay plan isn’t always set in stone so if your situation changes, you might be able to make adjustments. This includes being able to submit ad hoc lump sums, or increasing and decreasing monthly repayment amounts according to fluctuations in what you can afford. Remember, HMRC wants your debts cleared just as much as you do.
Arranging a Time to Pay arrangement
You may be able to set up a Time to Pay arrangement online if:
- It is about your Self Assessment tax bill
- You have already submitted your Self Assessment tax return
- You owe £30,000 or less in tax
- You aren’t currently in any other type of HMRC payment plan
- You don’t have any other outstanding debts with HMRC
If this scenario doesn’t apply to you, you will need to get in touch with HMRC and discuss your situation with an adviser. Get some snacks ready – there’s a good chance you’ll be on hold for a while.
When should I arrange a Time to Pay plan?
Contact HMRC as soon as possible if you think you’ll be unable to pay your tax bill on time. The more time you give yourself for discussions and paperwork, and the more proactive you are about getting everything sorted, the more helpful HMRC are likely to be.
How the process works
The Time to Pay arrangement process typically follows these four top-level steps:
1. Reaching out to HMRC to negotiate
The first step is letting HMRC know about your situation, either by applying online if you meet the above criteria or by calling an adviser if you don’t.
2. Coming to an agreement with HMRC
If HRMC agrees to a payment plan, your affordability will be assessed, and you will come to an agreement on what you will pay back each month.
3. Making your arrangement official
Once the negotiation, assessment and agreement phases are complete, your TTP can then be formalised and signed. You will then start paying your tax bill in monthly installments.
4. Monitoring your plan
HMRC will work with you to monitor your tax payment plan, and if your circumstances change (e.g. if your monthly income or spending increases or decreases), new payment terms can be negotiated.
Will I pay interest on my tax bill if I have a Time to Pay agreement?
Yes, HMRC will still apply interest on top of the tax you owe when you put a Time to Pay arrangement in place.
A TTP essentially buys you more time to pay your tax without incurring penalties, but it doesn’t disqualify you from late payment interest. Typically, this interest will continue to accrue during the repayment period. There are cases when interest may be reduced or even waived, but it’s rare.
Make sure you review the terms and conditions very carefully indeed. It will help you plan your repayment strategy so you can take steps to protect your cash flow as much as possible in the process.
Will a Time to Pay arrangement affect my personal assets?
HRMC guidelines say that if you owe unpaid tax, your home is safe. This means HMRC won’t ask you to sell your home in order to pay overdue tax bills. The same applies to your pension, which is also exempt from ways to repay unpaid tax.
However, if you have any other assets, such as savings or additional property, HMRC is entitled to bring these into discussions about how you’re going to settle your tax debt.
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