If your Self Assessment bill is bigger than the money in your account, you are not out of options. HMRC lets most people spread a tax bill over monthly instalments through a Time to Pay arrangement. For bills up to £30,000 you can set one up online in a few minutes, without calling anyone.
What catches people out is the detail. Interest keeps running on every pound you owe. The online service has strict eligibility rules. And missing one instalment can bring the whole debt back at once. This guide explains how Time to Pay works, who can use the online service, and how to set a plan up before penalties start.
What is a Time to Pay arrangement?
A Time to Pay arrangement is an agreement with HMRC to pay a tax debt in monthly instalments instead of one lump sum. It’s available for most taxes, including Self Assessment, VAT, PAYE and Corporation Tax. For Self Assessment, the plan normally runs for up to 12 months.
The key benefit is protection from late payment penalties. Once HMRC has agreed a plan and you keep to it, it won’t charge late payment penalties on the debt covered by that plan.
Can you set up a payment plan online?
You can use HMRC’s online self-serve service if all of the following apply:
- You owe £30,000 or less
- You’ve filed your latest Self Assessment tax return
- You have no other tax debts and no other HMRC payment plans
- You’re setting it up within 60 days of the payment due date
If you don’t meet these conditions, you can still ask for Time to Pay. You’ll just need to call HMRC’s Self Assessment Payment Helpline instead, and HMRC will want to understand your income and outgoings before it agrees a plan.
How to set up a Self Assessment payment plan online
- File your return first. HMRC can’t agree a plan until it knows the final figure. Filing early in January gives you time to plan.
- Sign in to your HMRC online account and choose the option to set up a payment plan.
- Choose your monthly payment and the day it goes out. HMRC will show you what’s affordable within the 12-month limit.
- Set up the Direct Debit. Payments are collected automatically, so you can’t forget one.
- Keep your confirmation. It’s your proof that the debt is covered by an agreed plan.
The cost: interest still runs
A payment plan stops penalties, not interest. HMRC charges late payment interest on any tax paid after its due date, at the Bank of England base rate plus 4%. That interest runs from the original due date until the debt is cleared, even inside an agreed plan.
A simple example: a £6,000 bill due on 31 January, spread over 12 months, means each £500 instalment carries interest for the months it’s outstanding. The later instalments cost noticeably more than the early ones. If you can afford larger early payments, you’ll pay less interest overall.
Our guide to how to pay Self Assessment tax covers payment references and clearing times, so instalments land on the right account.
What happens if you don’t pay or arrange a plan?
Under the standard Self Assessment rules, unpaid tax attracts late payment penalties on top of interest. These are 5% of the unpaid tax at 30 days late, another 5% at 6 months and another 5% at 12 months. A Time to Pay plan agreed before each penalty date prevents that penalty being charged.
If you’ve joined Making Tax Digital for Income Tax, a newer points-and-penalties regime applies instead. Our guide to Self Assessment penalties explains which system you’re on.
Ignoring the debt is the worst option. HMRC can eventually take money from your bank account, send debt collectors or take court action.
Don’t forget July: payments on account
The January bill is often two payments in one: the balance for last year and the first payment on account for this year. A second payment on account follows on 31 July. A 12-month plan covering January’s bill will overlap with July’s payment. Budget for both, or you may end up needing a second arrangement. Our payments on account guide explains how to reduce them if your income has fallen.
What if you miss an instalment?
Contact HMRC straight away. If you miss a payment without explanation, HMRC can cancel the arrangement and ask for the full balance immediately. Penalties can then apply. HMRC is usually more flexible if you get in touch before a payment fails, not after.
How an accountant helps
The best time to sort a big tax bill is before January. An accountant can file your return early, check you’re not overpaying, review whether payments on account should be reduced, and tell you the real figure while there’s still time to plan.
SmartFiling’s ICAEW chartered accountants prepare and file Self Assessment tax returns from £149, fixed fee. Get a free quote and we’ll reply within one working day.
Frequently asked questions
Does a Time to Pay arrangement affect my credit score?
HMRC doesn’t report Time to Pay arrangements to credit reference agencies. If a mortgage lender asks about tax debts, though, you should answer honestly.
Can I pay off a Time to Pay plan early?
Yes. You can pay extra or clear the balance at any time, and you’ll save interest by doing so.
Can I get a plan longer than 12 months?
Possibly, but not online. Call HMRC and be ready to explain your income, outgoings and why you need longer.
