Spread your Self Assessment Payments

The 2020/21 tax year has been tough for many of us. So it’s no surprise that many owners, directors and self-employed individuals are concerned about having enough funds to pay their self-assessment income tax bill.

The good news is that HMRC are now letting you spread out your income tax payments. 

HMRC’s ‘time-to-pay’ arrangement lets you pay your personal tax bill in pre-agreed instalments, with a small amount of interest added on for the use of this service.

Even better news – the upper limit for spreading your payments has increased from £10,000 to £30,000 – giving you more scope to turn your tax bill into manageable instalments.

How does the time-to-pay scheme work?

The amount that you can spread will include payments deferred from July 2020, the balance of your 2019/20 tax, and the first payment on account towards the 2020/21 tax bill.

Other points to think about:

  • Interest will be charged from 1st Feb 2021 – currently at 2.6% p.a.
  • You need to choose how much to pay initially and how much you will then pay monthly.
  • If a payment is missed, the whole amount can be demanded by HMRC.
  • If an arrangement is set up, this avoids any enforcement action to collect your due taxes, ie. calling in debt collectors etc.

Am I eligible?

There are five criteria that must be met for HMRC to consider an online payment arrangement:

  1. The amount due must be between £32 and £30,000.
  2. There must be NO outstanding tax returns to submit
  3. There must be NO other tax debts
  4. There must be NO other active HMRC payment plans
  5. The length of the payment plan must not exceed 12 months

The deadline to set up online payments is within 60 days of the due date – in this case, 1st April 2021 for the current tax year and the first payment on account for the coming tax year.

If you don’t qualify based on the five rules above, you can still apply for normal (not online) time-to-pay arrangements.

It’s worth noting that time-to-pay arrangements don’t show up in credit searches – but if it ends up with an Individual Voluntary Agreement (IVA) or County Court Judgement (CCJ) being made, that will show up.

More good news?

HMRC have just announced that they won’t be giving penalties for filing your 19-20 self assessment late, as long as you do it before 28th February.

You still need to pay your tax bill before 31 January, and interest will be charged 1st February onwards. You can pay online before you file.

You can’t set up a monthly time-to-pay arrangement until you’ve filed your return.

James Watson