Deferring or paying in instalments: not the same thing

One form, two very different requests

The confusion has a simple explanation: there is a single application, it is called deferral or payment by instalments, and it is filed through the same online form. Inside the form you have to choose, and a great many people choose without realising they are choosing.

Deferring postpones the whole payment to a later date: the entire debt falls due in one go, further out. Paying in instalments splits the debt into tranches, each with its own due date and its own amount. The two can also be combined: an instalment plan whose first tranche sits a few months out is, in practice, a deferral followed by instalments.

The two columns

	Defer	Instalments
What it does	Moves the whole due date to a single later date	Splits the debt across several due dates
Who it suits	Someone expecting a specific, dated receipt	Someone with regular monthly cash flow
Interest	Late-payment interest on the whole amount, for the whole period	Late-payment interest on the capital outstanding in each tranche
Comparative financial cost	Higher: the principal runs in full to the end	Lower: the principal falls each month
Risk of default	One critical day	As many critical days as there are instalments
Guarantees	Waived below the threshold in force, which today stands at 50,000 € of combined debt

The guarantee threshold

This is the fact that changes the conversation most. Below the limit in force — currently 50,000 €, counting the taxpayer's debts in the voluntary period and in enforcement together — the application is exempt from providing any guarantee and is processed automatically, within maximum terms set by the ministerial order in force: of the order of twenty-four months for individuals and twelve for companies.

Above the threshold everything changes: you have to offer security — a bank guarantee as a rule, and if you can show one cannot be obtained, a mortgage, a pledge or something else — or apply for a waiver by demonstrating that you have insufficient assets and that enforcement would damage your productive capacity. That is no longer an errand: it is a file with financial documentation, and it takes time.

What cannot be deferred or paid in instalments

• Withholdings and payments on account. This is third-party money withheld in order to be paid over, and the law excludes it as a general rule. It catches out every small employer.
• Corporate income tax payments on account.
• Debts arising from VAT charged and actually collected, unless it is properly shown that the customer never paid.
• Debts resulting from enforcing final decisions that wholly or partly dismissed an appeal and had previously been suspended.

Filing an application over a debt that cannot be deferred does not freeze anything: it is rejected as inadmissible, and inadmissibility has an unpleasant effect, because it is treated as though nothing had been filed and the enforcement period runs on from the end of the voluntary period, with its surcharge.

When each one wins

Deferring wins where there is a future receipt that is certain and dated: a sale completed with deferred payment, an agreed settlement, a refund of another tax already applied for. There is no sense in paying over twelve instalments what can be paid in full in June.

Instalments win in the commoner situation: monthly income that supports a payment but not the whole amount. It also costs less in interest, because late-payment interest runs on the capital outstanding and the capital outstanding falls every month.

As an illustration of the shape of the problem, not as a threshold for anybody: a debt of 12,000 € paid in one go after twelve months accrues interest on 12,000 € for that entire year; spread over twelve monthly instalments, the average outstanding balance is roughly half, and so is the interest. The difference is not enormous, but it is real and it points the same way as prudence.

The in-between case: deferring or paying in instalments: not the same thing

There are at least three situations in which the right question is not «defer or pay in instalments» but «do I actually have to ask for this at all?».

The split that comes with the income tax return itself. A personal income tax return showing tax to pay can be settled in two goes: part when you file and the rest in the following autumn, with no interest, no guarantee and no application to process. It is a facility separate from the one governed by the General Tax Act, and it is lost with some regularity by filing late or by failing to set up the direct debit for the second payment. Anyone entitled to use it who applies for an ordinary instalment plan instead is paying interest for something they had for nothing.

The debt that can be set off. If there is a repayment recognised or claimed — on another tax, another year, a rectification under way — the natural route may be an offset rather than time to pay. It avoids interest on the part set off and avoids a schedule that then has to be met. Very few people make the connection, because debts and repayments are looked at on different screens.

The debt you do not owe. Where the assessment is going to be appealed, the step is not to ask for time: it is to apply for suspension within the appeal, with whatever security is appropriate or by asking to be excused from it. Applying to defer a debt you are disputing has an effect many people discover too late, because asking for time to pay something looks a great deal like accepting that you owe it, and it complicates the defence afterwards. Suspending and deferring are not two comfortable alternatives: they are mutually exclusive roads, and the choice needs to be made deliberately.

And a boundary worth stating, because it saves telephone calls: social security debts are not applied for here. They have their own body, their own application, their own interest and their own grounds for refusal. A self-employed person who owes money in both places has two files, not one. The same goes for a municipal bill such as IBI or the local land tax, which is the town hall's to grant, on its own terms.

What to look at before deciding on deferring or paying in instalments: not the same thing

The application takes twenty minutes to fill in; the decision is prepared before that. This is what needs to be gathered:

• A complete list of the debts, with the amount, the form, the tax and the stage each one is at: still in the voluntary period or already in enforcement. It is the total that decides whether the guarantee threshold is crossed.
• The date the voluntary period ends for each one. A few days change the surcharge, and a surcharge once incurred is not erased.
• Which part of the debt can be deferred and which cannot. Putting withheld tax into the same application as everything else is the quickest route to a rejection that drags the rest down with it.
• Repayments owing to you, in case it is better to set them off before asking for time.
• A month-by-month cash forecast for the next two years, built on real income rather than on a good year. That is where the instalment you can actually meet comes from, and it is almost never the smallest instalment the system will let you ask for.
• Whether you need a certificate of good standing to draw a grant, contract with a public body or keep a licence. A plan granted and being complied with is not treated like a default; a breach is, and that is worth knowing before you stretch the instalment.
• What security you could offer if the total goes over the threshold: your capacity to obtain a bank guarantee, unencumbered property, and how long your bank will take to answer.

Our method with deferring or paying in instalments: not the same thing

We start with the boring part: which debts exist, which of them can be deferred at all, how much they come to together and whether the total crosses the guarantee threshold. That first sift decides whether we are dealing with an afternoon's work or a file with financial documentation behind it.

Then we build the calendar on your real income, not on a good year, and ask for something that can be complied with. If the debt does not fit into any reasonable calendar, we say so and talk about other exits rather than stringing together applications that are going to be breached. The line is on paying in instalments and the form asks for the amount and the tax form number, which is what determines whether the debt admits instalments at all.