Time to pay arrangements for individual taxpayers clarified

HMRC has issued guidance for individual taxpayers on how to settle a tax debt using a negotiated time to pay arrangement

Taxpayers struggling to pay their tax bills can try to arrange a monthly payment plan with HMRC to spread payments over a specific time period. Unpaid tax bills incur penalties and interest charges so it is important to get in touch with HMRC as early as possible to negotiate repayments, although interest is not waived during the period.

Time to pay arrangements are based on an individual’s specific financial circumstances and there is no standard time to pay arrangement. HMRC assesses what the taxpayer can afford to pay and then uses that to work out how much time is needed to pay.

HMRC said: ‘We’ll establish your ability to pay using an “income and expenditure” assessment. This looks at your income, disposable assets and expenditure to calculate your disposable income.

‘It’s designed to be flexible and is not a fixed, formal contract. It can be amended over time, enabling it to be shortened if your earnings rise or if you receive a windfall, for example, an inheritance. Importantly it can also be lengthened should essential expenses increase, or income decrease.’

Interest accrues from the due date to the end of the time to pay arrangement. The interest payable will be included in overall debt covered by the arrangement.

The financial assessment reviews the taxpayer’s current financial position, including income and expenditure, savings, investments and other assets

Repayment terms generally do not exceed 50% of disposable income and there is no upper limit on the amount of time someone can have to pay, HMRC said.

A time to pay arrangement can cover all outstanding amounts overdue, including penalties and interest. According to HMRC, 90% of time to pay arrangements are paid off.

If taxpayers are having difficulty paying a tax bill, they need to contact HMRC directly and will need a Government Gateway user ID and password, which can be set up once the repayment scheme has been agreed for those that do not have one.

When contacting HMRC it is important to have the following information to hand:

  • reference number relating to the tax bill;
  • details of the amount of tax you cannot pay, covering all debts outstanding to HMRC;
  • reasons why you are unable to pay, current financial circumstances and indication of what you could afford to pay;
  • what you’ve done to try to pay your bill on time and in full;
  • how your finances are likely to change in future; and
  • bank account details to set up a Direct Debit.

Affordability check

HMRC will also accept financial affordability status figures calculated by an independent debt adviser such as the Citizens Advice Bureau’s ‘standard financial statement’.

It is possible to agree a delayed start to repayments by ‘pausing collection activty’ in instances where the taxpayer has limited disposable income.

HMRC also has powers to force taxpayers to realise assets, for example, savings, shares, or equity in a second property, and this would be discussed on a one-to-one basis before an arrangement is agreed. Pension income is included when calculating income, but is protected, and the primary residential property is not taken into account.

In the guidance HMC stated: ‘We’ll not ask you to sell your family home. We may consider taking a charge on your home to secure the debt payable to HMRC if it’s not possible to agree a time to pay arrangement with you and you’re not able to pay by any other means.’

If a Direct Debit is cancelled or payments are payments, HMRC can take alternative action to recover the debt. This may include:

  • an HMRC field force officer will visit your home or place of business;
  • county court proceedings; and
  • insolvency proceedings.

HMRC guidance: Find out how to pay a debt to HMRC with a time to pay arrangement issued 20 Jan 2020

Example of HMRC financial assessment form (PDF, 5 pages)

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