The deadline to file a self-assessment tax return might be today, but there are still options available if you’re struggling to pay your 2022/23 bill.
Filing a tax return can be daunting at the best of times, let alone after another year of high energy bills and rising food prices. Around half a million are set to miss today’s tax return deadline, with almost a quarter (22%) worried about the financial implications of making an error when completing the self-assessment.
So, YourMoney.com spoke to industry experts to see what taxpayers can do when they’re unable to pay all of their tax bill straight away.
The first thing to do is not to panic if the amount seems too much, according to Paul Noble from accounting firm Blick Rothenberg.
He was in agreeance with fellow experts Sarah Coles (Hargreaves Lansdown) and Sarah Pennells (Royal London), in that the first move should be to contact HM Revenue & Customs (HMRC) as soon as possible.
1. ‘Time to pay’ plan
This option ought to be your first port of call and allows you to make repayments without any penalties across 12 months. It’s available if you owe less than £30,000, are up to date with your taxes, and do not have an active payment plan with HMRC.
However, there are other factors to consider when agreeing to the payment plan. Noble said: “HMRC will want to know some more details about your circumstances to assess affordability.
“It should be borne in mind that in any such agreement, HMRC will charge interest until such time as payments are made, and with its current rate of interest being 7.75%, this may not always be the most affordable option.”
Sarah Coles echoed that caution. She said: “It will only be possible to set this up if HMRC thinks you can afford it, so it’s not a solution for everyone, and there is interest to pay on outstanding cash, but it’s a better solution than simply missing the payment and paying fines on top of interest.
“It may not go with your figures, but HMRC will want to find a repayment approach that works for both you and it.”
2. Contact HMRC to explore affordability options
Alternatively, if you can’t agree on a ‘time to pay’ plan, it’s important to engage with HMRC to explore your options.
Coles added: “If you don’t qualify for time to pay online, or you can’t afford the scheduled payments, call the HMRC self-assessment payment helpline to arrange a schedule you can manage.
“It can help to have done some work beforehand, working out what you’ll have coming in, what your expenses will be, how much you can afford to repay each month, and how long that will take for you to settle up.”
3. Using your PAYE tax code
If the previous two options do not lead to any formal agreements being reached, you may yet be able to make payment. This is for employees who have made contributions through a Pay As You Earn (PAYE) tax code.
Sarah Pennells said: “Also, something for people with relatively small bills to consider for the future is paying a bill through your tax code.
“This only applies where the outstanding tax is less than £3,000, you already pay tax through PAYE, i.e., you’re an employee or in receipt of pension income and you have submitted a paper return by 31 October or an online return by 31 December. This will spread the payment without being charged late payment interest.”
Borrowing to pay tax bill is a ‘thorny issue’
While paying for a tax bill using a credit card is prohibited, one way you might be considering paying a bill is through a loan, overdraft, or from friends and family. However, Sarah Coles says borrowing to pay for a tax return is a ‘thorny issue’.
Due to the credit card restrictions when it comes to tax bills, most lenders won’t give you a personal loan, and “there are real risks if you choose to be dishonest when applying for a loan.”
Coles added: “While you can dip into an overdraft, the rates on this kind of borrowing are horrendous, so it’s a very expensive way of doing it.
“You might choose to borrow from family or friends instead, but while this seems more straightforward, you need to be clear about how you will repay the debt and then stick with it, because mixing relationships with debt can be fraught with stress.”
How to prepare for next year
While it is still not too late to make arrangements to pay your current tax bill, looking ahead to the future might allay any concerns when next year’s self-assessment deadline arrives.
If you feel that chipping away at the amount is best, then HMRC offers a ‘budget payment plan’ where you can agree on either weekly or monthly direct debits towards your next self-assessment tax bill. Whatever is left at the end of that period needs to be paid by January’s deadline.
As well as arrangements with HMRC, putting money into savings accounts with generous returns is another way of making sure you’re prepared for your tax return.
Sarah Pennells said: “It’s a good idea to build some financial resilience by setting aside some money in a savings account. Look at the total tax you owed this year, from your July and January instalments, and put away a twelfth of that every month in a savings account to prepare for 2025.
“If you know you’re earning more this year, you may need to increase your monthly savings. ‘Best buy’ easy access savings accounts are currently paying around 5% interest – so if you start saving now, you may even have a bit extra earned from that interest this time next year.”
