Ways to pay tax

It is already too late to pay a tax liability with cash or cheque at a Post Office counter, as this service was withdrawn on 15 December 2017. The ability to pay tax using a personal credit card will be ceased on 12 January 2018, as we explained in our newsletter on 26 October 2017.

HMRC would like all taxpayers to pay by electronic transfer, but that requires a payment reference number. Taxpayers can be confused by which reference number should they use.

The instructions on gov.uk make it clear that the taxpayer must use their UTR number with the letter ‘K’ added at the end, 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’s no wonder 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.

Some tax payers 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 under self-assessment, not for CGT, VAT, or corporation tax.

An alternative way 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.

Written by the Tax Advice Network