How Budget Payment Plans Help Spread Your Tax Bill
A Budget Payment Plan is a voluntary Direct Debit you set up with HMRC to make regular payments towards your next Self Assessment bill. Unlike Time to Pay (which is for debts you can’t pay), a Budget Payment Plan is a proactive way to spread the cost.[2]
How It Works
- You choose how much to pay each week or month
- Payments are collected by Direct Debit
- The money builds up as a credit on your HMRC account
- When your tax bill is due (31 January / 31 July), HMRC uses the credit towards your bill
- You only need to pay any remaining balance[2]
Setting Up a Budget Payment Plan
You can set one up through your HMRC online account. You’ll need:[1]
- Your Self Assessment UTR number
- A UK bank account that accepts Direct Debits
- No outstanding Self Assessment debt
How Much Should You Pay?
A good starting point is to divide your last year’s total tax bill by 12 and set that as your monthly payment. Adjust up if your income is growing.[3] If you report your income through MTD Income Tax software, the in-year figures can help you judge how much to set aside.
Example: Your last Self Assessment bill was £3,600. Setting up a monthly payment of £300 means you’ll have £3,600 saved by January — covering the full bill.
Changing or Stopping
You can change the amount or cancel the plan at any time through your online account. Any payments already made stay as credit on your account.[2]
Budget Payment Plan vs Time to Pay
| Feature | Budget Payment Plan | Time to Pay |
|---|---|---|
| Purpose | Save ahead for future bills | Pay off existing debt |
| When to use | Before your bill is due | After you can’t pay |
| Interest charged? | No | Yes |
| Penalties avoided? | Yes (you pay on time) | Possibly (if set up early) |
| Setup | Online, self-service | Online (under £30k) or phone |
Frequently Asked Questions
What is a Budget Payment Plan with HMRC?
A Budget Payment Plan is a voluntary Direct Debit you set up with HMRC to make regular weekly or monthly payments towards your next Self Assessment tax bill. The money builds up as a credit on your account and is used when your bill falls due.
Is there interest on a Budget Payment Plan?
No. Unlike a Time to Pay arrangement (which is for existing debts), a Budget Payment Plan does not incur any interest because you are paying ahead of your deadline.
How do I set up a Budget Payment Plan?
You can set one up through your HMRC online account. You need your Self Assessment UTR number, a UK bank account that accepts Direct Debits, and no outstanding Self Assessment debt.
Further Reading
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Sources
- Pay your Self Assessment tax bill — GOV.UK
- Budget Payment Plan — GOV.UK
- Understand your Self Assessment tax bill — GOV.UK