How to make a payment plan with HMRC

Sometimes businesses are unable to pay their taxes on time. This guide will tell you what to do to arrange a payment plan with HMRC.

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Setting up Payment Plans with HMRC

Sometimes a business may find itself in the unfortunate position of being unable to pay its taxes on time. There are a number of reasons that this might happen, for example you may have not realised that your business was liable to register for VAT and are suddenly facing a backdated VAT bill, or the business may simply be facing a sudden economic down-turn. Whatever the reason, if you aren't able to pay, you are entitled to ask HMRC to setup a payment plan for you to help ease the burden.

Late Payment Penalties

Before we begin you need to know that simply ignoring the problem is not the solution. If a business fails to make payment of its taxes on time, HMRC can issue late payment penalties for any taxes unpaid. The size of the penalty depends on two factors, how big the tax bill is and how late it is paid.

If a business is genuinely unable to pay its taxes, adding financial penalties into the mix can create additional stress and add further problems to cash flow.

Solution

If your business finds itself in such a position, HMRC will allow you to set-up a payment plan with them.

So long as your business sticks to the agreed payment plan, HMRC will not issue any late payment penalties on the unpaid tax and they will not issue legal proceedings and/or send debt collection officers to the business premise.

However, if your business fails to stick to the payment plan this will restart the process and the business may find itself penalised.

Only agree to a payment plan if you and your business are able to stick to it.

How to Set Up a Payment Plan with HMRC

The only way that you can set up a payment plan with HMRC is to call the dedicated telephone line (see bottom of this page for link).

The operators on this line are known for being incredibly tough, attempting to apply pressure to get you to pay your tax rather than setting up a plan (or setting up a plan that is less favourable so that HMRC gets paid faster). While we believe that paying taxes is the right thing for society, businesses need to be able to survive so that they can continue to contribute. To avoid putting your business in a more difficult position than necessary, there are some things to do in order to be prepared for the call that we will outline below.

Note: Even though your accountant is authorised to file your taxes, they are not authorised to arrange a payment plans on you or your businesses behalf. The only people authorised to do this are the business owners, so you must make this call yourselves.

Steps to take before the call:

Step 1 - Write down your reason for not being able to pay the tax on time down

One of the first questions the operator will ask is "Why is your business unable to pay it's taxes on time?".

Writing down the reason might feel strange and we aren’t encouraging people to fabricate reasons, however, by it's very nature this call will be uncomfortable and we know that if you aren’t prepared for this question then, when asked on the spot - especially if you’ve been on hold for a long time and you’re multitasking - you might panic, freeze or waffle. All of these things can lead to a more difficult call, especially if the agent is particularly tough. Ensuring that you have your reason written out in front of you will mean you will have thought about it properly in advance and will be able to answer without feeling like you're on the back foot.

While writing out your reason we suggest properly thinking about what went wrong and writing a few bullet points to show what processes you’re going to put in place so that it won’t happen again (as these are likely to be follow-up questions).

Step 2 - Calculate how much tax you can pay right now

One of the conditions for setting up a payment plan will be that you need to make a one-off payment while on the call. Therefore you will need to know how much you and your business can afford to pay towards the tax bill straight away. This will be difficult to calculate on the spot, which is why we suggest giving it some proper thought in advance of your call.

As you can imagine, the agent on the phone will most likely try to have this increased as much as possible, for example by asking why you cannot pay more and how you know this is all you can pay. By calculating ahead of the call you will know how much you can afford to pay and why.

Do not feel pressured, if you cannot afford to pay any more then tell them that you have calculated it and you cannot afford to pay more than stated

Step 3 - Calculate how much you can afford to pay each month

Calculate how much you can afford to pay each month and how many months it will take you to repay the full amount. HMRC will apply interest to the outstanding balance, so we suggest adding an additional month or two onto the calculation so that you know you can afford the interest too.

Note: The interest rate that HMRC use is much lower than that of a bank. Therefore we do not recommend taking out a loan or using a credit card when arranging your payment plan.

As we mentioned above, in order to avoid having penalties charged against your business, you will need to be able to stick to the agreed payment plan. Therefore if you have made your calculations in advance and if the agent on the telephone attempts to pressure you into a different plan, be strong and tell them that you have calculated how much you can afford to pay and for how long. HMRC would rather your business survives and is able to pay more tax in the future, so although it might feel tough, should allow you to stick to your calculations - NB: So long as they are genuinely reasonable!  

Write down your calculations and ensure that you have them to hand for when you make your call. As above, if HMRC pressure you to increase the payment amounts, explain your calculations and why you cannot pay more.

Note: Don’t forget, you must still be able to save for any other taxes as they fall due. There is no point paying off a previous VAT return if you are now unable to pay upcoming VAT returns when they are due. Ensure that you take into account collecting and paying your other taxes while making this calculation.

Step 4 - Schedule and put aside time in your diary to make the call

Paying your taxes and arranging a payment plan with HMRC is a serious matter, however, because of this it can be an easy thing to continually put off. Do not fall into this trap as burying your head will only make matters worse. Put aside some time in your diary to deal with this matter and stick to it.

Do not fall into this trap as burying your head will only make matters worse.

Just before you phone HMRC (next step) ensure that you have the following details to hand:

  • Any tax reference numbers for the tax in question (VAT number for VAT, UTR for Corporation Tax, PAYE numbers for PAYE, etc)
  • The reporting period that is currently unpaid
  • You business debit or credit card
  • Notes and calculations from steps 1 to 3

Step 5 - Make the call to HMRC

Finally, now that you are fully prepared - Phone HMRC using the details found here: https://www.gov.uk/difficulties-paying-hmrc

Step 6 - Stick to the payment plan

Now that you have completed your call and made the initial payment, ensure that you stick to the payment plan and there should be no further problems. If you are suddenly unable to stick to the plan, ensure you telephone HMRC as soon as you know as it is always best to have an open dialogue with them.

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