Self Assessment Payment Plan
- Adil Akhtar
- 1 day ago
- 18 min read
Updated: 11 hours ago
Navigating Your Self Assessment Payment Plan in the UK: How to Stay Ahead of Your Tax Bill in 2025
Picture this: You’ve filed your Self Assessment tax return, and then the bill lands on your doorstep — sometimes far bigger than expected. It’s the classic British dread: “How on earth am I going to pay this?” Whether you’re an employee with multiple income streams, a sole trader, or a business owner juggling expenses, understanding the Self Assessment payment plan options can be the difference between sleepless nights and sorted finances.
The Straight Answer: What Is a Self Assessment Payment Plan?
A Self Assessment payment plan in the UK lets taxpayers spread the cost of their tax bill over several installments if they can’t pay the full amount by the deadline. For the 2025/26 tax year, if you owe up to £30,000 and have filed your latest tax return, HMRC lets you set up a payment plan online, enabling you to pay in manageable chunks spread over up to 12 months. This facility is usually called the "Time to Pay".
But beware — there are precise eligibility criteria. If you owe more than £30,000, or already have other tax debts or payment plans, you’ll need to speak to HMRC directly to agree a bespoke plan. Either way, the system is designed with flexibility, allowing taxpayers to tailor the instalments to what they can realistically afford.
2025/26 Income Tax Rates, Bands & Allowances: Why They Matter When Planning Your Payment
Understanding your tax bands and allowances is crucial to calculating what you owe and what you might be able to put on a payment plan. For the 2025/26 tax year in England, Wales, and Northern Ireland, the income tax landscape is as follows:
Income Band | Tax Rate | Taxable Income Range |
Personal Allowance | 0% | £0 to £12,570 |
Basic Rate | 20% | £12,571 to £50,270 |
Higher Rate | 40% | £50,271 to £125,140 |
Additional Rate | 45% | Over £125,140 |
If you earn more than £100,000, your personal allowance reduces by £1 for every £2 over this limit, effectively increasing your tax liability and potentially influencing your payment plan options.
Scottish taxpayers face differing rates and thresholds, reflecting devolved powers. For instance, the starter rate kicks in at 19%, with several bands between 19% and 48% tax rates.
None of us loves tax surprises, but knowing exactly which band you fall into and how your personal allowance is applied can help you verify the accuracy of your tax bill and figure out an affordable payment schedule.
Who Needs to File a Self Assessment Tax Return?
In my years advising clients in London and across the UK, confusion over when to file a Self Assessment return is common. The key threshold changes for 2025 might surprise some.
For the 2025/26 tax year, if you are employed with income collected through PAYE and earn less than £150,000, you typically won’t need to file a Self Assessment return unless you have other untaxed income or specific tax situations, such as the High-Income Child Benefit Charge or significant investment income.
However, if you’re self-employed, a partner in a business, or earn income over £1,000 outside of PAYE, Self Assessment filing remains mandatory. This is an important distinction because filing a return triggers the tax bill and the potential need for a payment plan.
Why So Many People End Up Owing HMRC and How Overpayments Can Occur
I often encounter clients like Bob from Manchester, a freelancer juggling contracts and a side hustle, who thought their tax was sorted through PAYE deductions. But Bob’s multiple income streams meant his annual tax calculation caught him short.
HMRC’s data shows thousands of taxpayers either underpay or overpay each year — some by unlucky oversight, others because of life changes like starting a business mid-year or changes in benefits.
Overpayments are surprisingly common, resulting from payroll errors or unclaimed reliefs. Being able to check your personal tax account online regularly — an invaluable free HMRC service — lets you verify if you’re due a refund or on track to pay, and plan accordingly.
Practical Case Scenario: Setting Up a Payment Plan
Take Sarah, a small business owner in Bristol, who owed £18,500 after her first Self Assessment filing since going freelance. With expenses paid but cash flow tight, she used HMRC’s online portal to apply for a payment plan.
Sarah was able to spread her payment over 12 months, reducing stress and avoiding penalty charges for late payment. She found the process straightforward but cautions to keep up with instalments to avoid losing the arrangement.
What Happens If You Don’t Pay on Time?
It’s easy to fall behind, especially if you get hit by a surprise bill or under-predicted payments on account. HMRC charges penalties if you miss deadlines: an initial £100 late filing penalty, followed by daily or monthly escalating penalties. Interest also builds on unpaid tax.
These charges can make the debt snowball quickly. But setting up a payment plan as soon as difficulty arises can often avoid penalties.
Real-World Insight: Employers and PAYE Contributors
For businesses, unpaid PAYE and employer National Insurance contributions can also be put on payment plans, but the thresholds and rules differ.
If a company owes £100,000 or less in PAYE arrears, and the debt is less than five years old, HMRC may allow a payment plan up to 12 months, ensuring businesses can stay afloat while meeting their liabilities.
What About Payments on Account?
For many self-employed people or those with high tax bills, HMRC expects advance payments for the current year—known as Payments on Account.
These are due in two instalments: 31 January and 31 July each year. Each instalment is typically 50% of the previous year’s tax bill. If your tax bill fluctuates significantly year to year, this system can catch out taxpayers and cause unexpected bills after July.
For example, Jack, a consultant in Leeds, underestimated his 2024 earnings. His payments on account were based on 2023 earnings, so his July instalment felt like a surprise top-up rather than a half payment.
Key Takeaway for Employees and Business Owners Alike
If you receive more than one income stream—say, from employment and freelance work—your tax will be calculated on your total income. Paying attention to tax codes, keeping accurate records of expenses (especially for businesses), and regularly checking your tax calculation via your personal tax account helps avoid nasty surprises.
UK Self Assessment Payment Plans Statistics
Verifying Your Tax Liability and Setting Up a Tailored Self Assessment Payment Plan in 2025
So, the big question on your mind might be: “How do I make sure the tax I owe is correct? And what happens if I can’t pay it all in one go?” Let’s break this down with practical, step-by-step advice that reflects real-world experiences, whether you’re a salaried employee with freelance income, a self-employed sole trader, or a business owner managing multiple revenue streams.
Step 1: Double-Check Your Tax Calculation with Your Personal Tax Account
Before worrying about payment plans, it’s crucial to verify the figures HMRC has on file for you.
The easiest and most accurate way to do this is through your personal tax account on the GOV.UK website. This online portal shows your latest tax calculation, payments on account, any tax already paid via PAYE, and any outstanding balance.
An often-overlooked tip: Use this account to download your full “Calculation Summary” and compare it directly with your records—payslips, bank statements, invoices, and expense receipts.
In my experience with clients like Emma, a part-time tutor in Birmingham who also runs a small Etsy shop, this step caught underreported freelance earnings that, when corrected, adjusted her payment plan capacity and reduced stress.
Understanding Payments on Account: Why They Can Catch You Out
If your last Self Assessment tax bill exceeded £1,000 and less than 80% of your tax was already collected through PAYE, HMRC expects you to make advance payments on account towards your next tax bill.
These are split into two payments due by 31 January and 31 July each tax year, each representing 50% of your previous year’s tax bill. If your income fluctuates, this can unintentionally bump up your required payments unexpectedly.
If you discover your payments on account don’t reflect your current earnings, you can request to reduce them—but be cautious. Underestimating can lead to a big balancing payment and possibly interest charges.
Step 2: Tally All Your Income Sources and Reliefs for Accuracy
This is where many people fall into traps. HMRC sees the total income from all sources, including:
● Employment income (PAYE)
● Self-employed profits
● Property rental income
● Dividends and interest
● Overseas income
● Benefits in kind
The tax due is calculated on the aggregate, so even “side hustles” matter.
Real talk: Be careful here, because I’ve seen clients trip up when they rely on their employer’s tax code to cover everything. In one case, David from Glasgow worked full-time but also had a second job as a DJ. He hadn’t reported those gigs fully, which triggered an HMRC enquiry and a hefty penalty.
Don’t forget to claim all relevant reliefs such as:
● Marriage Allowance transfer
● Business expenses for self-employed individuals (including home office, vehicle costs, and professional subscriptions)
● Gift Aid donations
● Pension contributions, which can lower your taxable income
Step 3: Understand Your Tax Code and Its Role in Balancing PAYE and Self Assessment
Think of your tax code like a postcode for your income—it tells your employer or pension provider how much tax-free income you get and how much to deduct each pay period.
If you have complex income sources, your tax code might be adjusted, but it’s only designed to cover your main employment income. The other income types must be included in your Self Assessment return.
Check your tax code every year (or more frequently if your circumstances change) via your personal tax account or payslips. Wrong codes mean paid too much or too little tax during the year, affecting your total tax bill.
Step 4: Will You Need a Self Assessment Payment Plan? Assess Your Ability to Pay
If your tax calculation shows you owe tax, and you can’t pay it all at once on 31 January (the deadline for payment), a payment plan might be your best choice.
HMRC’s "Time to Pay" self-service facility lets you set up instalments online for tax debts up to £30,000 if you’ve filed your return and can pay the full amount within 12 months.
If you owe more than £30,000, or can’t pay within a year, you’ll need to call HMRC’s Self Assessment Payment Helpline to negotiate a bespoke arrangement.
Step 5: How to Set Up Your Payment Plan (With a Checklist)
When you go online, HMRC asks for some financial details to tailor your plan realistically. Prepare the following:
● Your Unique Taxpayer Reference (UTR) number
● UK bank details (must be authorised to set up direct debits)
● Details of your income and expenses or cash flow
● Any missed payments or existing debts with HMRC
● Information about savings, investments, or assets that could help settle your tax sooner
HMRC expects you to use available savings first. If you’ve already undergone independent debt advice, a Standard Financial Statement can expedite the process.
Step 6: Practical Example—How a Payment Plan Is Tailored
Take Peter, a self-employed graphic designer in Leeds who owed £12,000 after filing. He was able to propose a monthly instalment of £1,000 that matched his ongoing earnings minus living costs.
HMRC accepted, and Peter avoided late payment penalties and interest, buying breathing space to build up savings without halting his business.
Step 7: What to Watch Out for: Common Errors and Pitfalls
● Missing the 60-day window after payment deadline to set up a plan online can force you into phone negotiations, which are tougher.
● Underestimating affordability and then missing instalments can lead to plan cancellation and penalties.
● Confusing Payments on Account with the final bill can trigger panic; remember they are advance estimates.
● Ignoring notifications from HMRC because they seem complex or threatening — being proactive saves money and stress.
Step 8: Variations for Scottish and Welsh Taxpayers
Scottish and Welsh taxpayers pay income tax based on their respective devolved rates and bands. This means the tax calculation in your Self Assessment may differ.For example, Scottish higher rate thresholds start lower, and additional rates can be higher than those in England.These nuances matter when assessing your tax liability and setting payment amounts. Always double-check tax bands specific to your residence.
Advanced Tax Tips for Business Owners and High-Income Earners: Mastering Your Self Assessment Payment Plan in 2025
Now, let’s think about your situation — if you’re a business owner or a high-income earner, the Self Assessment payment plan landscape has particular twists and turns you’ll want to master. This part dives deep into those nuances, sharing my experience advising clients through complex cases, including emergency taxes, managing high-income child benefit charges, and optimising deductions to reduce your tax burden.
When Business Deductions Can Make or Break Your Payment Plan
Business owners know that understanding allowable business expenses is crucial. You can deduct legitimate costs, such as office expenses, vehicle costs, stock purchases, and professional fees, from your taxable profits, shrinking your tax bill and therefore your payment installments.
Take Claire, who runs a boutique digital marketing firm in Bristol. She initially under-claimed vehicle expenses, losing out on thousands. Upon review, she adjusted her Self Assessment figures, which not only lowered her tax owed but gave her extra room to set smaller monthly payment plans.
Remember: Keep detailed records — HMRC can request evidence of expenses up to six years after submission. Avoid accidental disallowances by using accounting software or trusted accountants.
Emergency Tax and High-Income Child Benefit Charge: What to Watch Out For
It’s a common scenario: you switch jobs or your income spikes unexpectedly, and the tax deducted feels wildly off. Emergency tax codes sometimes mean too much tax is taken—or not enough.
Louise, a client from Edinburgh, lost out by being taxed on an emergency 1257L code instead of her usual code. The catch? She filed Self Assessment, paid the balance, but got caught up in a timing mismatch for payments on account.
For families earning more than £50,000, the High-Income Child Benefit Charge (HICBC) may apply, clawing back benefit money and inflating tax bills. This charge can cause unexpected lumps you may need to include in your payment plan budget. I’ve seen clients caught unaware by this, so keep track of your combined household income thresholds.
How to Handle Multiple Business Ventures or Rental Properties
If you own more than one business or several rental properties, tax calculations can be tricky.
Each business or property’s profits need to be calculated separately, but all income totals up in your Self Assessment return. Expenses must be carefully allocated—mixing personal and business finances can cause errors.
Martin, a landlord and part-time IT consultant in Manchester, almost doubled his tax bill by not allocating repairs between his business and rental correctly. After correcting this, he was able to reapply for a payment plan that better fitted his true cash flow.
IR35 and Its Effect on Contractors’ Self Assessment Payments
With IR35 reforms clamping down on disguised employment, contractors often find their tax bills jumping.
Simon, a contractor in Leeds, discovered that after HMRC’s IR35 inquiry, some of his income had to be treated as employment income rather than dividends. This changed his Tax Year Account balance and required recalculations of payments on account and payment plan amounts.
Checklist: Staying on Track with Your Self Assessment Payment Plan
Staying organised is half the battle won. Here’s a checklist based on common errors I’ve seen and helped clients navigate:
● Confirm your tax calculation against records in your personal tax account.
● Include all sources of income — part-time, freelance, rental, dividends.
● Claim all eligible reliefs and expenses with full receipts.
● Check your tax code and update HMRC with any changes.
● Understand and plan for payments on account if applicable.
● Set up your payment plan as early as possible if you cannot pay in full.
● Keep up with instalments to avoid cancelling the plan and penalties.
● Reassess your financial situation regularly; update HMRC if you can pay more or need concessions.
● Seek professional advice for complex cases like IR35, rental income, or multiple businesses.
● Keep detailed financial documentation for at least six years.
What Happens if You Need to Adjust or Cancel Your Payment Plan?
Life happens, and sometimes your situation changes after you’ve set a payment plan. HMRC is generally accommodating if you explain your new circumstances promptly.
If you can pay more, you can increase instalments online. If you struggle, contacting HMRC quickly can enable you to amend terms or consider other arrangements like Time to Pay extensions or debt relief.
Ignoring instalments risks defaulting the plan, incurring interest, and even enforcement actions.
Summary of Key Points
A Self Assessment payment plan helps spread your tax bill cost over up to 12 months for debts up to £30,000, easing financial strain.
● It’s a flexible, straightforward way to avoid penalties if you can’t pay upfront.
Verify your tax liability early using HMRC’s personal tax account and cross-check with your income and expenses.
● This proactive approach helps catch errors and prevents surprises.
Payments on account are advance tax payments for self-employed or high bill taxpayers, due 31 January and 31 July annually.
● Misunderstanding these leads to common taxpayer confusion and unexpected bills.
Include all income sources on your return—employment, freelance, rental, dividends, and overseas earnings—to avoid HMRC enquiries.
● Ignoring side income can lead to penalties and interest.
Keep your tax code up to date; it affects how much tax is deducted via PAYE and impacts your overall Self Assessment balance.
● Incorrect codes are a frequent cause of tax under/overpayment.
Business owners must meticulously track and claim all allowable expenses to reduce taxable profits and tailor realistic payment plans.
● Detailed records protect you in case of HMRC reviews.
Emergency tax codes and high-income child benefit charges can unexpectedly increase your tax bill.
● Knowing these traps helps you plan further or claim refunds.
Multiple businesses or rental properties increase tax complexity; precise income and expense allocation is critical.
● Ambiguous records can cause big tax recalculations and payment plan disruptions.
IR35 reforms can dramatically change contractor tax liabilities, affecting Self Assessment bills and instalment planning.
● Seek specialist advice if you suspect you fall inside IR35.
Always keep documentation and stay ahead of deadlines. Missing instalments or ignoring HMRC correspondence can escalate debts with penalties and interest.
● Open communication with HMRC is key if payment difficulties arise.
FAQs
Q1: Can someone change their tax code if it’s incorrect and how does that affect payment plans?
A1: Well, it’s worth noting that tax codes can be adjusted if errors slip in — often due to missed benefits or outdated info. An incorrect tax code might cause under- or overpayment via PAYE, which then shifts your Self Assessment balancing payment. In practice, correcting the code early means your payment plan can be smaller or even unnecessary. I’ve had clients who spotted this early through their personal tax account and immediately saved hundreds by getting HMRC to fix their code before the Self Assessment deadline.
Q2: What happens if a taxpayer has multiple jobs with different employers – how does this impact their Self Assessment payment plan?
A2: Having multiple jobs often means at least one employer uses a BR tax code (basic rate) which taxes income without allowances. This can cause underpaid tax, leading to a significant Self Assessment bill once all income is totaled. I've seen clients who didn't realise this mismatch until after filing and had to negotiate instalments. The key: gather all P60s and payslips to check total income, then prepare a payment plan that reflects the true combined liability.
Q3: How do Self Assessment payment plans work differently for Scottish and Welsh taxpayers?
A3: The main difference lies in the tax bands and rates — Scotland and Wales have their own rates. This alters your overall tax bill, which affects payment plan sums. For example, Scottish higher rates kick in at lower income, potentially raising tax owed. So, a Glasgow-based self-employed person may have higher instalments than someone in London with similar earnings. Always consult your regional rates before agreeing a plan with HMRC.
Q4: Can a Self Assessment payment plan cover National Insurance contributions as well as Income Tax?
A4: Absolutely. When you owe Class 2 or Class 4 National Insurance alongside Income Tax, HMRC includes these in the Self Assessment bill, and consequently in your payment plan. For instance, self-employed clients often overlook how National Insurance bumps their total liability and can catch them short on instalments if not considered.
Q5: What if someone underpays tax because of an emergency tax code — can this be adjusted in their Self Assessment payment plan?
A5: Emergency tax codes often cause under-deductions which leave a larger tax bill at Self Assessment time. The plan? Use your Self Assessment return to square up the underpayment. If the bill is sizeable, setting a payment plan with HMRC lets you spread costs. I recall a client who switched jobs mid-year, was taxed roughly, and avoided a financial crunch only by promptly setting a plan.
Q6: How do payments on account affect the timing and amount of Self Assessment payment plans?
A6: Payments on account are pre-payments – two instalments paid before the full bill is due. If your income varies greatly between years, payments on account might not match your actual liability, causing larger balancing payments. I've advised clients to review these payments carefully and, if justified, request to reduce them, which can ease the burden when setting up payment plans.
Q7: Are there tax reliefs or allowances that can be claimed to reduce Self Assessment payments that HMRC might not highlight automatically?
A7: Yes, lots of subtle reliefs can lower tax owed but often get missed. For example, certain work-related expenses (tools, uniforms), professional subscriptions, or pension contributions. A builder in Leeds once saved enough through these to halve his balancing payment and avoid payment plan necessity. Always review expenses with an eye for what’s allowable.
Q8: Can business owners include VAT payments in their Self Assessment payment plans?
A8: VAT is separate from Income Tax and National Insurance; payment plans for Self Assessment don't cover VAT bills. However, if you owe a large VAT sum, HMRC offers separate Time to Pay arrangements. Mixing them up is a common pitfall for small business owners juggling multiple tax debts.
Q9: What should self-employed individuals do if their income drops drastically after setting a payment plan?
A9: They should contact HMRC immediately. Payment plans can be varied to reflect new circumstances. I’ve helped freelancers in Glasgow adjust plans mid-year due to lost clients, relieving financial stress. Ignoring changes risks defaulting and accruing penalties.
Q10: How do Self Assessment payment plans work for income from overseas or foreign pensions?
A10: Foreign income must be declared in your Self Assessment return and adds to your tax bill. Payment plans include these sums. Currency fluctuations can complicate calculations, so keep detailed records. A client with a Canadian pension once underestimated tax owed until reviewing exchange rates and was able to adjust instalments accordingly.
Q11: Can students who earn via part-time jobs and have fluctuating income use payment plans?
A11: Students often pay tax via PAYE, but if earnings cross HMRC’s threshold or they have other income, they may need Self Assessment. If a bill arises, payment plans are available. A uni student juggling several jobs once avoided a lump-sum shock by setting monthly instalments, easing budgeting around tuition fees.
Q12: What happens if someone misses the 60-day self-service window to set up a payment plan after the deadline?
A12: Then they must call HMRC for a bespoke arrangement, which can be more stringent and less flexible. Early action within 60 days keeps things simpler. Delayed contact can also increase penalties and interest.
Q13: Can an employer’s error in PAYE coding affect your Self Assessment payment plan?
A13: Definitely. If an employer uses an incorrect code, you may underpay or overpay tax during the year. The difference appears in your Self Assessment bill, altering your instalment needs. Checking payslips regularly and flagging odd codes with HMRC earlier can prevent unexpected sums.
Q14: What should landlords know about including rental income and expenses in their Self Assessment payments?
A14: Rental income must be reported, and allowable expenses—like repairs and mortgage interest—deducted to reduce taxable profit. Many landlords I advise miss deducting allowable finance costs fully, inflating tax bills and payment plan amounts unnecessarily.
Q15: Are there differences in setting payment plans for contractors subject to IR35 rules?
A15: Yes. Since IR35 income is treated like employment income, tax deductions are different, but contractors still file Self Assessment to cover any balancing payments (like Class 2/4 NICs or dividends outside IR35). Often these clients find themselves with larger or more complex payments, so negotiating realistic instalments is vital.
Q16: Can a Self Assessment payment plan be used to cover Capital Gains Tax liabilities?
A16: Yes. If you owe Capital Gains Tax reported via Self Assessment, it forms part of the total tax bill eligible for a payment plan. Property sales or share disposals can trigger significant liabilities that clients have successfully spread via instalments.
Q17: How do marriage allowance transfers affect individual tax liabilities in Self Assessment payment plans?
A17: Marriage allowance allows certain couples to transfer £1,260 of Personal Allowance, potentially reducing tax owed. When included in Self Assessment, it lowers your bill and, consequently, the required instalments in your payment plan. Couples sometimes forget to claim this, resulting in unnecessarily large payments.
Q18: What pitfalls exist for those juggling business expenses claimed both personally and via a company?
A18: Overlapping claims lead to HMRC investigations. For directors drawing salaries and dividends, expenses need careful separation. A client running a limited company and a side sole trader overlooked this, triggering amendments and revised payment plans. Clear record-keeping and advice prevent such costly confusion.
Q19: If someone receives a tax refund from HMRC, can it offset outstanding Self Assessment instalments?
A19: It can, but HMRC doesn’t automatically apply refunds to outstanding debts unless instructed. Many taxpayers are unaware they need to notify HMRC if they want a refund offset against a payment plan balance. Coordinating refunds and payments saves money and hassle.
Q20: How does working remotely or from multiple locations within the UK affect Self Assessment tax and payment plans?
A20: Mostly it affects your allowable expenses and possibly tax residence nuances if you spend time in different devolved nations with unique tax rates. A remote worker splitting time between Scotland and England, for instance, should consider which rates apply. This complexity can affect calculations and instalment sizing. I’ve guided clients through these nuances to ensure accurate budgeting and avoid penalties.
About the Author
Adil Akhtar, ACMA, CGMA, serves as CEO and Chief Accountant at Pro Tax Accountant, bringing over 18 years of expertise in tackling intricate tax issues. As a respected tax blog writer, Adil has spent more than three years delivering clear, practical advice to UK taxpayers. He also leads Advantax Accountants, combining technical expertise with a passion for simplifying complex financial concepts, establishing himself as a trusted voice in tax education.
Email: adilacma@icloud.com
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