Sometimes, tax bills feel like they hit at the worst possible moment. An unexpected tax bill may catch you off-guard, or life can simply get in the way. Try not to worry, though. HMRC can be helpful if you’re going through financial difficulties and may be able to offer a payment plan to give you some space to breathe.
HMRC’s payment plan team are there to help you through tough tax situations. You can call them through their business support service or set up a payment plan online. It’s best to get on top of the problem early, and it will also help you keep on top of future tax liabilities.
Keep reading as our knowledgeable tax accountants put your mind at ease by exploring potential late payment penalties and how to set up a pay arrangement with HMRC.
What happens if I don’t pay my tax bill on time?
If you think you won’t be able to make tax payments on time, the best thing you can do is call HMRC and work it out with them. This will keep you on the right track and help you avoid harsh penalties or even action from a debt collection agency.
Depending on your situation, HMRC will handle your late payment in different ways. It all depends on how often you miss payment deadlines, the amount of tax due and the type of tax you’ve missed (e.g., Corporation Tax, PAYE or NI for employers, Self-Assessment tax or VAT).
Missed VAT payments can have the harshest penalties, so that’s something to watch out for.
Late payment penalties based on type of tax
Self-Assessment
Missing a Self-Assessment tax return or bill is worrying, and it can be challenging trying to work out how much you owe. The penalty starts at £100 but can increase with time. HMRC has a tool to help you estimate your penalty for Self-Assessment.
Corporation Tax
If you miss a CT deadline, interest is typically charged from the day your Corporation Tax is overdue, usually 9 months and 1 day after your year-end.
PAYE and National Insurance
When it comes to PAYE and National Insurance, your first late payment doesn’t count. After that, they become points-based (called defaults). It’s quite complex, but essentially, the more defaults you get, the higher the penalty, starting at 1% of the amount outstanding in the relevant month and going up to 4% if you’ve had ten defaults or more.
You’ll then be charged an additional 5% if the payment is overdue for 6 months, plus another 5% if it’s still unpaid after 1 year.
VAT
Arguably, HMRC has the strictest rules on late VAT payments. The sooner you pay, the lower the penalty will be. It’s definitely one to call HMRC about as quickly as possible if you’re worried you might not meet a payment deadline.
Accrued interest
In addition to penalties, you’ll also be charged interest for late payments. As with penalties, late payment interest varies depending on the type of tax you owe, how much it is, how late it is and how often you miss deadlines.
Enforcement action
If you can’t pay your tax bill and don’t contact HMRC, they will usually contact you by letter to resolve the issue. You should act quickly to prevent the issue from going any further.
HMRC has many resources to reach businesses that owe tax. They may even use enforcement action, such as a debt collection agency if the bill goes unpaid for too long. Once it’s with the debt collectors, you must bear in mind that they’ll need to be informed about any debt you’re paying. This adds an additional layer of stress as you have multiple authorities to update.
Setting up a payment plan with HMRC
Making appropriate pay arrangements with HMRC before things get out of hand is the best way to get back on track with your taxes. But how does it work?
To set up a payment plan with HMRC, you will need some information to begin, including:
- Your unique tax reference number
- Your bank details (to set up a Direct Debit)
- Details of any missed payments
The process for setting up a payment plan varies depending on the type of tax you owe, as there are certain rules and requirements to meet. Head to the gov website to find out your next steps and start the process online.
The best advice we can give is don’t be afraid of calling! We understand it isn’t easy to reach out when you are struggling financially, but HMRC wants people to be able to pay. They will be flexible as long as you are willing to work with them.
Wondering how much tax you owe? Get in touch
If you’re heading towards a bumpy road with your finances, you could probably use some professional help.
At Archimedia Accounts, we are here to act as your financial department. We give you the knowledge and tools you need to get back on track with financial management.
We’ll help you manage your tax liabilities in a way that is simple and stress-free, and if you have missed a deadline, we will ease you through the process. Get in touch with Archimedia Accounts today!
Frequently asked questions about HMRC payment plans
Can HMRC debt be written off?
You can write off HMRC debt if you file for insolvency (e.g. liquidation). If you’re going to do this, we’d recommend using a specialist insolvency agency. There are various things to navigate around, and an insolvency agency can help a lot.
Will HMRC let me pay in instalments?
Yes. The idea of setting up a payment plan is to make it easier for you to pay off the debt, which usually means paying it off in small instalments rather than a lump sum.
Can an agent arrange a payment plan with HMRC?
Your agent is authorised to file your taxes and view or edit certain information on your online HMRC accounts. Unfortunately, they can’t arrange a payment plan for you, but they will likely be able to advise you on the best steps.
Can you extend the payment deadline?
HMRC’s payment plan team are there to negotiate with you and help, but you do need to be honest with them. If the team agrees to it, you may be able to extend your payment plan deadline.
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