Payments on account (POAs) for the selfemployed or those taxpayers who have significant income from sources other than employment have been compulsory for nearly 30 years. POAs are advance payments towards the final tax bill, made twice a year (in January and July) based on the previous year’s tax liability. The payment dates could not come at a worse time for many, just after Christmas and during the school holidays. Companies do not have to make POAs; their tax bills are due in one lump sum nine months and one day after the accounting year end. Other taxes, including PAYE, have other deadlines.
Other Payment Methods
Although those dates are contained in law, HMRC offers other payment methods if anyone is struggling to pay or wants to ensure that payments are made on time.
- A budget payment plan (BPP) allows regular monthly or weekly payments by direct debit towards the next tax bill. With this plan, the taxpayer chooses how much to pay and how often. Payments can also be paused for up to six months, if needed. To use the BPP, previous payments must be up-to-date. This plan can be set up online without having to contact HMRC.
- A ‘Time to Pay’ (TTP) arrangement is a formal negotiated agreement allowing the spread of tax payments in arrears, typically in 12 monthly instalments. Those lasting over 12 months are only agreed in exceptional cases. For tax due under self-assessment, a TTP arrangement can be applied for online so long the latest tax return has been filed, the amount owing is £30,000 or less, the application is made within 60 days of the payment deadline (which means that for a self-employed taxpayer, the TTP agreement must be in place by 31 March) and the taxpayer does not have any other payment plans or debts with HMRC. Applications not fulfilling the online requirements will need to be made with HMRC initially by a phone call followed by a formal written agreement. Details of income and expenses will need to be declared.
If HMRC accepts a TTP proposal, interest will be charged, but HMRC may lift any penalties. TTP proposals can be rejected; this is usually because:
- HMRC has reason to doubt the taxpayer’s ability to clear the debt in the period suggested;
- they have a history of late submissions of returns;
- they have previously failed to respond to correspondence;
- they have not kept to previous TTP arrangements;
- they have not kept HMRC informed of their financial situation; or
- it appears that the business is not viable and not capable of making a profit, rather than just suffering from short-term problems.
TTPs can also be used for VAT, PAYE and corporation tax arrears (although the conditions for application differ); they can also be used in anticipation of problems with upcoming payments.
- For those taxpayers who are employed as well as self-employed, payment of a selfassessment tax bill can be made through the PAYE tax code so long as the amount owed is less than £3,000 and the previous year’s tax return was submitted on time. HMRC will automatically collect through the tax code if these conditions are met unless the box on the tax return specifically asking them not to do so has been ticked.
If tax is outstanding on three specific trigger dates, a 5% late payment penalty is charged. These dates are usually thirty days, six months and 12 months after the due date for the tax. For self-assessment, the 5% penalty can be avoided by setting up a TTP arrangement before 31 March 2024 and keeping to the terms of the payment plan, although interest will be charged