If you have a tax demand from HMRC for income tax or capital gains tax and you are worried that you can’t pay it all on the due date, you should contact HMRC as soon as you can.
HMRC will always check whether it is possible to set up a payment plan under which you agree to make a monthly amount over an agreed period of 12 months or longer to settle the tax liability.
Contacting HMRC
For tax due under self-assessment, you can set up a payment plan online if:
- The amount due is less than £30,000
- Your tax returns are up to date
- You have no other overdue tax debts
- It is less than 60 days from the due date for payment of the tax
You can set up a payment plan online by using this link.
In all other cases, or if you don’t have online access, you can call HMRC on 0300 200 3820
Information HMRC will need to set up a payment plan
In all cases, HMRC will need information about the tax due and about your financial position so that they can establish how much you can pay. This information is:
- Your reference number (your UTR or a reference that has been included on HMRC correspondence)
- Details of the payments due that you have missed or are unable to pay.
- Your bank account information: the payment plan requires a direct debit to be set up.
- Your monthly income from all sources.
- Your assets including savings accounts and physical assets that could be sold to raise money to pay the outstanding tax.
- Your monthly regular outgoings on living expenses.
HMRC will need information about any mortgage or rental payments you make, but they will not require you to sell your home.
HMRC will expect you to use some of the funds from your savings or investments to reduce the tax that you owe but will not require you to withdraw any funds from your pension savings.
HMRC use this information to calculate net disposable income after paying living expenses. The payment plan will assume that up to 50% of disposable income after all living costs have been met will be used to pay the tax.
You can offer to pay more than 50% of your disposable income, but you should only offer what you can really afford.
If you have contacted the Citizens Advice Bureau or another organisation about debt management, they may have helped you prepare a Standard Finance Statement. HMRC will accept this as a calculation of your disposable income.
HMRC do not ask for proof of income, assets, or expenditure, but expect you to be honest with them and the plan may be cancelled, and enforcement action taken if they discover that you have not made a full disclosure.
If there are exceptional circumstances that explain why you cannot pay the tax in full, you should also let HMRC know about them.
The normal length of a payment plan is 12 months, but there is no restriction on the length of a plan, so 2 or 3 year or even longer plans are possible.
What is covered in a payment plan?
The payment plan needs to cover all taxes that are due or will become due during the period the plan operates. It should therefore cover self-assessment payments on account which will become payable and any other taxes that you are aware of. You can ask HMRC for a full statement of account that will show all tax due, and your personal tax account which you can access online will also have this information.
HMRC will not accept any offer to pay less than the full amount of tax, but if you can make a lump sum payment of part of the tax, this will reduce the amount that is covered by the payment plan.
The plan will also include interest that accrues on any payment of tax that is late.
HMRC agreement
If HMRC agree a payment plan this will be confirmed in writing. If you don’t get written confirmation, you should request a written agreement just in case there is a future disagreement or misunderstanding about the payments.
HMRC are required to consider all requests for time to pay, but they may not agree to a plan: particularly if time to pay is requested regularly.
If HMRC do not agree to a payment plan, you cannot appeal, but you can make a complaint. HMRC will then have your case reviewed internally by another person and you can ask for your case to be referred to the independent Adjudicator’s Office if you are not satisfied with the outcome of the review.
During the payment plan
If your circumstances change during the plan, you should notify HMRC. If your disposable income is reduced, the plan can be extended; if your income increases, it can be shortened.
If you expect to miss a payment, you should advise HMRC in advance. Where a payment is missed, HMRC will call or visit you to understand why this happened and whether the plan is still affordable.
If another tax bill is received during the payment plan, HMRC may agree to include it in the plan.
Suspension of collection action
HMRC can agree to temporarily pause action to recover unpaid tax. Where it has been agreed that an asset will be sold to fund some or all the tax due, collection can be suspended until the sale is arranged. Suspension may also be possible if there is a dispute about the amount that is due.
Even if collection of the tax is suspended, interest will continue to accrue on the unpaid tax.
Waiver of tax owed
In some exceptional circumstances, where there is very low income with no prospect of any future increase and there are no assets or savings, HMRC may conclude that there is no prospect of the outstanding tax being paid. They can then waive the tax liability and agree that no action will be taken to recover the tax or interest.
What happens if I can’t pay but don’t contact HMRC?
If you don’t let HMRC know you can’t pay, they will not know whether you are simply refusing to pay tax that you owe. HMRC can take steps to enforce payment of tax debts, which they will take as a last resort. Enforcement action is covered in https://taxaid.org.uk/guides/taxpayers/tax-debt/time/enforcement-action.
