Self assessment: How to pay tax
It should be easy to pay tax due, but this tax season HMRC has withdrawn several payment methods, leaving taxpayers and tax agents confused.
No credit cards
Today (12 January 2018) is the last opportunity for taxpayers to use a personal credit card to pay tax or penalties owing to HMRC, but they can still use personal debit cards. Companies can continue to use corporate credit or debit cards to pay their tax bills, but directors should beware of using a corporate card to pay a personal tax liability.
Strictly, when the company pays a pecuniary liability (such as a tax bill) on behalf of one of its employees or directors, the result is a benefit-in-kind for the individual. The amount of tax paid should be grossed-up for tax and NI under ITEPA 2003 s 62(3)(a), as explained HMRC’s Employment Income Manual para EIM00580. The company should report the payment on the form P11D, it should not be payrolled (EIM00590).
In practice, if the company and individual agree to treat the payment of the tax bill as a debt owing to the company by the employee, and that loan is repaid swiftly, HMRC won’t go down the pecuniary liability route. Treating the payment of the personal tax as a loan due from individual to the company would be less expensive tax-wise.
It is already too late to pay a tax liability by cash or cheque at a Post Office counter, as this service was withdrawn on 15 December 2017. Taxpayers can pay tax bills by cash or cheque at other bank counters if they have the appropriate pre-printed payslip, although the bank may charge for this service.
Cheques in the post
HMRC will accept cheques for personal tax liabilities, but they discourage payment of corporation tax by cheque. Individuals need to include their UTR number on the face of the cheque and send it, with a completed paying-in slip to HMRC, Direct, BX55BD.
If the taxpayer doesn’t have an HMRC printed paying-in slip, you can print a personalised slip using this online form. This print-you-own slip can’t be used with a payment made at a bank counter.
No tax certificates
An alternative method to pay many taxes, especially where the amount due is disputed, has been to buy a certificate of tax deposit. However, the tax certificate deposit scheme was closed on 23 November 2017. All tax certificates in issue remain valid until 23 November 2023, after which they will have submitted to HMRC for a refund.
HMRC would like all taxpayers to pay by electronic bank transfer, but that requires the taxpayer to specify a payment reference number on the transfer instructions. Taxpayers can be confused by which reference number should they use.
The guide on gov.uk makes it clear that the taxpayer must use their UTR number with the letter ‘K’ added at the end of the UTR digits, as the payment reference for their self assessment tax payments. However, not all taxpayers can tell their UTR from their NINO, or even from their personal tax account ID number.
The gov.uk instructions send the taxpayer to their personal tax account to find out their UTR number, so it is no wonder that they get the reference numbers confused.
If the wrong reference number is used there will be a delay in allocating the tax payment against the correct taxpayer’s account. In the case of income tax, this won’t create many problems if the payment is sorted out within 30 days, but if the tax due is VAT or PAYE surcharge penalties could apply.
Budget payments plan
Some taxpayers get very anxious about paying their tax, as they find it difficult to budget and put money aside. Those individuals are ideal candidates for the HMRC budget payment plan, under which they pay a set amount each week, or month, out of their profits as they earn them.
The tax is effectively paid in advance by direct debit, and any shortfall has to be paid by the normal payment dates for self-assessment. This payment plan can only be used for income tax due under self-assessment, not for CGT, VAT, or corporation tax.
Where the taxpayer can’t pay the full amount due by the payment date, you should encourage them to contract HMRC business payment support service (BPSS) before the due date. The BPSS can be used by individuals as well as businesses, and you can negotiate with the service on behalf of your client.
The outcome will normally be an agreement to pay by instalments over a period of up to 12 months, with each payment made by direct debit. Make sure you record the details of any agreement made with the BPSS over the phone and send your notes to HMRC to acknowledge.