Budget For Your Tax Bill
Newsletter issue - August 09.
If you are self-employed it can be a struggle to save up enough money to pay the two instalments of your tax liability for the year due on 31 July and 31 January. HMRC has realised these two large six-monthly bills can be difficult to manage, so they have set up a budget payment plan to help individuals pay their tax bill in smaller chunks.
It works like this:
- You register on the HMRC website to use the HMRC online service for self-assessment. You don't have to use this service to send in your tax returns, we can still do this for you, but you can review your tax statements online, which is useful.
- Next, set up a direct debit online to pay your self-assessed tax to HMRC. You choose exactly what to pay and whether to pay weekly or monthly.
- About 5 days later the direct debit will be 'live' and it will start to take the amount you have authorised from your bank account at the intervals you specified. These amounts will be set against your next tax bill. You can change the amounts or the intervals at any time, and even cancel the payment plan if you wish.
- Your bank statements will show the payments to HMRC as: 'HMRC NDDS'.
There are some disadvantages to using this budget payment plan:
- HMRC will not pay you any interest on the amounts you have paid in advance towards your tax bill. A deposit account with a bank would pay a very small amount of interest.
- You can only make payments under the budget payment plan by direct debit.
- You cannot get the money back from HMRC to use for another purpose, unless you are due a tax repayment.
- You must be up to date with your self-assessment tax payments before you can join the budget payment plan.
Currently this budget payment plan can only be used by individuals. There is no similar payment plan in place for companies.