Say Goodbye to Tax Deadline Stress: How HMRC's Budget Payment Plan Can Help Self-Employed Taxpayers.

July 4th, 2023

Hey there, self-employed folks! Are you tired of scrambling to pay your taxes by the January and July deadlines? Well, have no fear, because we've got some good news for you. HMRC has a payment plan option that allows taxpayers to make regular advance payments towards their next self-assessment tax bill. It's called a budget payment plan (BPP), and it's pretty cool.

Here's how it works: you can set up and manage your own BPP using your HMRC online account. You decide the regular weekly or monthly amount (which can be amended as desired), choose to suspend payment for up to six months, and cancel at any time. Plus, if your income fluctuates from year to year, this plan is perfect because your tax payments can be based on your current in-year income. Talk about flexibility!

But wait, there's a catch. You can only take advantage of this payment plan if your payments and returns are up to date. That means if you're behind on your taxes, you'll need to use HMRC's 'Time to Pay' scheme instead. And if you owe a balance after subtracting the payment plan payments, you'll need to pay it by the due date. The downside is that HMRC doesn't give interest on such 'overpayments.' Bummer.

Now, if you're not a fan of formal agreements, you can always pay an amount to your tax accounts when you have spare cash. This has the potential to build up funds held by HMRC to pay the next tax payment when due. No formal arrangement is required, no set payment plan is needed, but again, no interest is credited. Just be aware that in some instances, HMRC views such a payment as an overpayment and may return the monies if it has your bank account details.

But here's some good news: regular payments to HMRC can be beneficial for small sole traders who are also in receipt of Universal Credit (UC). Tax payments are a deduction against income for UC purposes, so you could end up with slightly more UC each month rather than one month with a larger increase.

The government announced investment in HMRC systems in the 2021 Budget to improve the existing BPP and make it easier for taxpayers to use. HMRC believes that regular payments towards tax bills aid both HMRC's and the taxpayer's cash flow, reducing the costs involved in charging interest for late payment of tax and the cost of collecting unpaid tax. So, let's all raise a glass to easier tax payments!