HMRC: using Direct Debit to pay Self Assessment

[yorkshirelad1]

I'm thinking about setting up a direct debit (DD) to pay my Self Assessment (SA) usually due 31 Jan & 31 July. I usually just pay it via online banking (on 31 Jan/July), which seems to work fine, but I'm thinking of setting up direct debit to do the job. July is usually a payment on account, and Jan is usually a payment on account and a balancing payment. This is for personal tax.

Does anyone else use DD for pay their SA?

Is it like paying a domestic gas bill, where they send you a bill and say "we will take £x from your bank account ******** on this date" or something else?
Do they take it on the day, or a couple of days in advance of 31 Jan/July?
Does HMRC take the DD to settle SA twice a year, or do they try and turn it into a monthly payment plan (like some companies)?
Any "gotchas" (apart from giving HMRC your bank details to help themselves ...... s.t. DD guarantee obvs)?

The info at https://www.gov.uk/pay-self-assessment-tax-bill/direct-debit says: "You’ll need to set up single payments each time you want to pay by Direct Debit". That's confusing: I'd expect to set up a direct debit once and it says in place until cancelled. If I have to set a DD up each time (twice a year), there's no benefit compared to doing a manual payment.

TIA

[PinkDalek]

... The info at https://www.gov.uk/pay-self-assessment-tax-bill/direct-debit says: "You’ll need to set up single payments each time you want to pay by Direct Debit". That's confusing: I'd expect to set up a direct debit once and it says in place until cancelled. If I have to set a DD up each time (twice a year), there's no benefit compared to doing a manual payment.

I haven't used that facility but have done something similar elsewhere. The latter where they would only accept the funds via a single direct debit as part of their T&Cs which is not the case here. It might favour some people but, as you say, no real difference to paying manually (which can normally also be set up in advance) other than, perhaps, any benefit there might be under the Direct Debit Guarantee (not that I could think of one but see ***).


*** What is The Direct Debit Guarantee?
All payments by Direct Debit are covered by the terms of The Direct Debit Guarantee. One benefit of the Guarantee is that if an incorrect amount has been debited from your account, then banks and building societies guarantee to refund it.

The Direct Debit Guarantee is written out in full at the bottom of each Direct Debit Instruction (DDI).

That and more at Direct Debits FAQs https://public-online.hmrc.gov.uk/information/faqs/directDebits?affinitygroup= which may conceivably hint at why you may wish to use the DD system.

[Dod101]

Frankly a manual payment (once a year for me) is no hassle and works well enough.

Dod

[NeilW]

"You’ll need to set up single payments each time you want to pay by Direct Debit". That's confusing: I'd expect to set up a direct debit once and it says in place until cancelled. If I have to set a DD up each time (twice a year), there's no benefit compared to doing a manual payment.

TIA

The Direct Debit tax facility is a bit rubbish. It's essentially the same as setting up a bank payment except you do it on HMRC's website rather than on your own bank's website.

The direct debit stays in place, but you have to initiate each request yourself on the HMRC website manually. It's not done automatically based upon what you owe.

I tend to stick to paying from my bank using the app.

[yorkshirelad1]

"You’ll need to set up single payments each time you want to pay by Direct Debit". That's confusing: I'd expect to set up a direct debit once and it says in place until cancelled. If I have to set a DD up each time (twice a year), there's no benefit compared to doing a manual payment.

TIA

The Direct Debit tax facility is a bit rubbish. It's essentially the same as setting up a bank payment except you do it on HMRC's website rather than on your own bank's website.

The direct debit stays in place, but you have to initiate each request yourself on the HMRC website manually. It's not done automatically based upon what you owe.

I tend to stick to paying from my bank using the app.

Thank you to NeilW and others: useful feedback. I think I'll give HMRC's DD system a miss and stick with the usual method of paying 31 Jan/Jul. I thought it might too good to be true, and calling it payment by Direct Debit is over-egging the pudding (compared to what we are used to for our utility bills etc). Shame. It could be so much better.

[Lootman]

Frankly a manual payment (once a year for me) is no hassle and works well enough.

Me too, I just send them a cheque, payable to HMRC, or rather my accountant does on my behalf. This happens annually, usually around June or so, after completion of my SA return.

There was a discussion on TLF a few months ago suggesting that instead payments should be made twice a year, in July and January, as others have mentioned here. But in my case and your case, at least so far, no problem has arisen by not doing that.

[PinkDalek]

If you were due to make payments on account your accountant would no doubt let you know. The discussion probably concerned the special situation this year.

[Gengulphus]

Frankly a manual payment (once a year for me) is no hassle and works well enough.

Me too, I just send them a cheque, payable to HMRC, or rather my accountant does on my behalf. This happens annually, usually around June or so, after completion of my SA return.

There was a discussion on TLF a few months ago suggesting that instead payments should be made twice a year, in July and January, as others have mentioned here. But in my case and your case, at least so far, no problem has arisen by not doing that.

Tax payments arising from a year's tax return are normally due by January 31st the following year, and if you have to make payments on account for the next tax year, they're split into two equal-sized instalments normally due on the same January 31st and the July 31st six months later. So there are two possible explanations for you only making one payment per year - one is simply that you don't have to make payments on account, the other is that with your tax return being completed in June, your accountant sends HMRC the tax and first payment on account arising from that tax return (which won't actually be due for another seven months or so) plus the second payment on account arising from your previous tax return (due in about a month), all combined in a single cheque.

Making payments to HMRC about seven months ahead of when they're actually due (which happens under either explanation) does of course give up the chance of making some returns on them for those seven months, but those returns are likely to be minimal given present-day interest rates and the inadvisability of taking risks with money you're due to pay HMRC!

Gengulphus

[Dod101]

I try to arrange my tax affairs so as to pay as little tax as possible. Most of my dividends are sheltered in ISAs or in a SIPP but for last year I had a stupid significant amount to pay in CGT, stupid because it was of course entirely avoidable but anyway that is now history. My tax is due as G says by 31 January the following year. HMRC usually helpfully sends me a reminder about now and I pay it via my internet banking around the first week in January. I cannot see why I should pay it much before it is due.

Dod

[Gengulphus]

I try to arrange my tax affairs so as to pay as little tax as possible. Most of my dividends are sheltered in ISAs or in a SIPP but for last year I had a stupid significant amount to pay in CGT, stupid because it was of course entirely avoidable but anyway that is now history. My tax is due as G says by 31 January the following year. HMRC usually helpfully sends me a reminder about now and I pay it via my internet banking around the first week in January. I cannot see why I should pay it much before it is due.

The only real reason that I can think of for people who don't use accountants to pay the tax much before it is due is to get the feeling after completing their tax return that it's completely done and dusted for another year - no worries about missing the reminder, etc. For those who do use accountants, I suppose the accountant's fees might be slightly higher if they charge for the time spent rather than for the job, because of the extra time spent on opening and closing your case more than once per year. I doubt that any such fee increase would be very much - but then I doubt that the extra returns given up by paying early are very much either, so it's probably all down in the noise...

Gengulphus

[neversay]

I have used the HMRC Direct Debit, but like @NeilW I don't rate it. For some reason (I can't recall) there seems to be a lack of clarity (or confidence) about if/when the transaction will actually happen.

[Lootman]

I try to arrange my tax affairs so as to pay as little tax as possible. Most of my dividends are sheltered in ISAs or in a SIPP but for last year I had a stupid significant amount to pay in CGT, stupid because it was of course entirely avoidable but anyway that is now history. My tax is due as G says by 31 January the following year. HMRC usually helpfully sends me a reminder about now and I pay it via my internet banking around the first week in January. I cannot see why I should pay it much before it is due.

The only real reason that I can think of for people who don't use accountants to pay the tax much before it is due is to get the feeling after completing their tax return that it's completely done and dusted for another year - no worries about missing the reminder, etc. For those who do use accountants, I suppose the accountant's fees might be slightly higher if they charge for the time spent rather than for the job, because of the extra time spent on opening and closing your case more than once per year. I doubt that any such fee increase would be very much - but then I doubt that the extra returns given up by paying early are very much either, so it's probably all down in the noise...

Yes, for me it is about "getting it over with" as early as possible.

I submit the return and write the cheque at the same time, To me it is all one action. And the sooner I submit the return, the sooner I know it will not be challenged, as after one year the return is deemed to be correct by HMRC.

I do not know if my accountant would charge more if there was activity twice a year rather than once a year. But I cannot imagine it would be a material difference. If anyone is interested it costs about 400 a year. Some might think that a lot but it is worth it to me not to have to do it myself and worry if I have made a mistake. And that is much cheaper than it used to be back when I owned rental properties - that was a lot of adminstrative work that I have no interest in performing these days.

[Gengulphus]

... And the sooner I submit the return, the sooner I know it will not be challenged, as after one year the return is deemed to be correct by HMRC.

What's your source for that information, please? It seems doubtful to me in the light of various stuff I've read about how far HMRC can go back...

Also, I do know of a one-year limit, but it's one year from the submission deadline for the return, not from when the return is submitted, and it's not a limit on HMRC, but on the taxpayer; specifically, up to one year after the submission deadline, the taxpayer can 'amend' their tax return, to correct mistakes, change claims and elections, etc (though IIRC, the taxpayer's ability to 'amend' their return ends early if and when HMRC enquire into the return). After that deadline, they can no longer change their tax return themselves, though they can still ask HMRC to 'correct' it if a mistake has been made - but whether HMRC do so is at HMRC's discretion. So after that deadline, HMRC deem the taxpayer to have committed themselves to the return being correct, which is not the same thing as deeming it to be correct! But it's close enough that what you've said could be a misunderstood version of it... Or it could be a gap in my knowledge of how HMRC operates... Either way, I'd like if possible to chase it back to its source.

Gengulphus

[PinkDalek]

Also, I do know of a one-year limit, but it's one year from the submission deadline for the return, not from when the return is submitted, ...

An example from an HMRC letter received August 2020:

May I remind you that HM Revenue and Customs retains the right to enquire into any return within a period of 12 months from the date on which the Return was received.

That for submissions prior to the filing deadline.

Having now looked to update my knowledge, having forgotten the old system, that particular enquiry window changed in 2008 to what it now is as reflected in the link below:

https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1506

Extract only:

Returns made on or before usual filing date

Until 31 March 2008 the time limit for opening enquiries into returns received on or before the fixed 31 January filing date was the following 31 January.

Before FA2001 the time limit for opening such enquiries was 30 January.

From 1 April 2008 when a tax return is received on or before the relevant filing deadline, the enquiry window will run for a full 12 months from the date the tax return is received. So for a return received by HMRC on 20 June 2018, the enquiry window will run to 20 June 2019.

Edit: It then continues as you described, commencing:

Amendments

A taxpayer can make an amendment to their return up to 12 months from the filing date ...

[PinkDalek]

Merely to add, not really anything to do with the OP, just because the appropriate 12 months has passed doesn't mean one is in the clear for ever and a day.

If something is discovered following an enquiry on the following year's Tax Return, HMRC could, in certain circumstances, look back four years or six years (careless errors) or twenty years (dishonesty).

Plenty of detail available here HMRC internal manual Enquiry Manual https://www.gov.uk/hmrc-internal-manuals/enquiry-manual and elsewhere.

[Gengulphus]

Also, I do know of a one-year limit, but it's one year from the submission deadline for the return, not from when the return is submitted, ...

An example from an HMRC letter received August 2020:

May I remind you that HM Revenue and Customs retains the right to enquire into any return within a period of 12 months from the date on which the Return was received.

That for submissions prior to the filing deadline.

Having now looked to update my knowledge, having forgotten the old system, that particular enquiry window changed in 2008 to what it now is as reflected in the link below:

https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1506

Many thanks - I hadn't realised my knowledge of the area was so out of date!

Merely to add, not really anything to do with the OP, just because the appropriate 12 months has passed doesn't mean one is in the clear for ever and a day.

If something is discovered following an enquiry on the following year's Tax Return, HMRC could, in certain circumstances, look back four years or six years (careless errors) or twenty years (dishonesty).

Plenty of detail available here HMRC internal manual Enquiry Manual https://www.gov.uk/hmrc-internal-manuals/enquiry-manual and elsewhere.

And thanks again - that's roughly in line with what I called "various stuff I've read about how far HMRC can go back" - but that stuff seems to have skated over (or even totally ignored) the "following an enquiry on the following year's Tax Return" and "in certain circumstances" conditions...

Gengulphus

[yorkshirelad1]

Just posting a wee update to this in case it is of interest. It's not the direct question of using DD to pay your tax bill, but I suppose it's related, the idea seems to be a direct link from your tax account to your bank account via Open Banking. I can't see HMRC doing much to their DD system as it's not trendy/sexy/an "app"/"The Latest Thing": I'm obviously a dinosaur to think it might be nice to pay my HMRC bill like I pay my credit card bill e.g. "We will take £x from your bank account on Y date in 14 days time etc".

See Times today (27 Mar 2021)
Paying your tax bill will soon be easier
https://www.thetimes.co.uk/article/paying-your-tax-bill-will-soon-be-easier-zqg938vm9
(pay wall but free limited account available)

Apparently is the result of a interaction between Ecospend and HMRC: there are several articles from earlier in the year available via Google on HRMC and Ecospend
e.g. https://www.google.co.uk/search?q=ecospend+hmrc&oq=ecospend+hmrc

[Alaric]

I'm obviously a dinosaur to think it might be nice to pay my HMRC bill like I pay my credit card bill e.g. "We will take £x from your bank account on Y date in 14 days time etc".

I've been using on-line banking for more than twenty years and it's always been possible to forward date a credit card bill to the day before it's due. Equally I can do the same with payments to HMRC, assuming I've worked out what's due. Given that some taxpayers will not know what's owed until the last possible moment, HMRC's reliance on systems where you pay them seems understandable.