I can’t afford the payment on account on my Self Assessment tax bill

Why do I have to make a Self Assessment payment on account?

HMRC asks sole traders, partners and company directors to make a Self Assessment payment on account when their tax bill for a given year is over £1,000. The idea is that by making an upfront payment towards next year’s tax bill, you avoid a situation where you have to pay a large bill in January that you may not be able to afford. 

Although making payments on account can help company directors who receive regular dividends and have a steady flow of income, it can be less beneficial for directors who receive irregular dividend payments. It can also cause cash flow problems for the directors of seasonal businesses, who may have to pay high tax bills despite fluctuating income.

Can I reduce my Self Assessment payment on account?

It is possible to reduce your payments on account for the coming year, but only if you know your tax bill for that year will be lower than it is currently. You can apply to reduce your payments on account online or by sending Form SA303 to your tax office. You can also ask your accountant to apply on your behalf. When applying, you must include the level of income you expect to receive over the coming year so HMRC can recalculate your payments. 

Importantly, if you reduce your payments on account and your Self Assessment tax bill ends up being higher than expected, HMRC will charge interest on the difference. Therefore, this is not worth doing unless you genuinely believe your income will fall.  

What happens if I can’t afford to make a Self Assessment payment on account?

Understandably, some company directors may begrudge having to pay tax on money they’re yet to earn. That’s particularly the case when you make your first payment on account, as you must also pay the tax you owe for the current year in full. 

That can catch some directors out, as they may struggle to pay the unexpectedly high bill. And, if you do not pay what you owe in full and on time, that can lead to late payment penalties and interest charges, which further increase your liability. 

If you can’t afford to make a payment on account on your Self Assessment tax bill, you may be able to negotiate a payment plan. An HMRC Time to Pay Arrangement will allow you to make monthly payments over a typical period of three to six months, although you may be able to get up to 12 months or longer to settle the liability.

How do I make a payment plan for a Self Assessment tax bill?

HMRC will usually be willing to make a Time to Pay Arrangement for a Self Assessment tax liability if:

• You owe less than £30,000
• You have no other overdue tax debts
• You have filed all your tax returns
• It’s within 60 days of the tax payment deadline

You can make a payment plan with HMRC before or after your tax payment is due. However, requesting a payment plan before the deadline will help you avoid late payment penalties.

How to make a payment plan before your Self Assessment tax is due

You can do that by logging into your Government Gateway account online, scrolling down to the Self Assessment tax box and clicking the ‘Set up a payment plan if you cannot pay in full’ link. You’ll then have to answer a series of questions and suggest a monthly amount you can afford to pay.

How to make a payment plan after your Self Assessment tax is due

You can also request to make a payment plan after the deadline has passed. To do that, you’ll need to call the Self Assessment payment helpline on 0300 200 3822. You must provide your Unique Taxpayer Reference (UTR), explain why you cannot make the payment and suggest an amount you can comfortably afford to pay.

Are you struggling to pay your business’s tax bills?

If you’re worried about paying your Self Assessment tax bill or any other business tax liability, including VAT, PAYE, NICs or Corporation Tax, we can help. At Real Business Rescue, we have many years of experience negotiating with HMRC and can arrange Time to Pay Arrangements on your behalf. We can also help you consider alternatives if a payment plan is unavailable. That includes alternative financing, debt restructuring and a Company Voluntary Arrangement (CVA).

Please get in touch for a free consultation or arrange a meeting at one of our 100+ offices throughout the UK.