If you can’t pay your tax bill, ignoring it will not make the problem disappear.

You may have completed your Self Assessment, know exactly what HMRC wants and still find that the money simply is not there.

That can create stress, but there are practical steps you can take. The important thing is to understand what you can afford, deal with HMRC early and avoid making the situation more expensive than it needs to be.

About this episode

Filing your tax return is one job.

Paying the bill is another.

Sometimes you complete the return, breathe a sigh of relief and then discover that the tax due is more than the cash you have available.

If that happens, the aim is not to pretend the bill does not exist. We need to understand the position, work out what is affordable and find the best way forward.

This episode looks at HMRC Time to Pay arrangements, affordability, late-payment penalties, payments on account and what you can do to reduce the chance of facing the same problem next year.

First, make sure your tax return is filed

If you cannot pay the tax, do not use that as a reason to leave the return unsubmitted.

Filing and paying are separate issues.

Getting the return completed tells you what you actually owe. It also stops a payment problem becoming both a payment problem and a late-filing problem.

If the return itself is still outstanding, our guide on how to complete a Self Assessment tax return explains the wider filing process.

Can’t pay your tax bill? Work out what you can afford

Before speaking to HMRC, understand your own numbers.

Look at your personal cash flow and your business cash flow.

What money is coming in?

What essential household and business costs need to be paid?

What cash is genuinely left after those commitments?

This gives you a much better idea of what monthly payment you could realistically sustain.

HMRC will look at affordability when discussing a payment arrangement, so having those numbers prepared makes the conversation much easier.

If budgeting for tax is an ongoing problem, our guide on how to budget for your tax bill is a useful next step.

Ask HMRC about Time to Pay

A Time to Pay arrangement allows you to spread an overdue HMRC bill over regular monthly payments instead of paying everything immediately.

Some eligible Self Assessment taxpayers can set up a plan online.

If the online service does not work for your circumstances, you can contact HMRC to discuss the debt directly.

The amount you pay each month depends on what you can afford.

There is no fixed rule that every arrangement lasts six months or twelve months. The length depends on the size of the debt and the affordable monthly payment.

That makes preparation important.

Go into the arrangement knowing your income, essential spending, other debts and the amount you believe you can realistically pay each month.

Think of HMRC as another creditor

There is a useful distinction to make here.

The people collecting the tax are not necessarily the same people who assessed the amount you owe.

The debt-management side of HMRC has a job to do: collect money that is due.

If you run a business and one of your customers cannot pay you on time, you would probably want them to communicate rather than disappear.

The same principle applies here.

Be clear about the problem, explain what you can afford and keep to whatever arrangement you agree.

Think of HMRC as a slightly bigger beast of a supplier.

Interest and late-payment penalties still matter

A payment arrangement helps you manage the debt, but it does not make the cost of paying late disappear.

Interest can continue to apply to the outstanding tax.

Self Assessment late-payment penalties can also apply at:

30 days after the payment deadline
6 months after the payment deadline
12 months after the payment deadline

Each of those penalties is normally 5% of the tax still unpaid at that point.

This is why acting early matters.

The longer the debt remains unresolved, the greater the risk that interest and penalties add to the original bill.

Check your payments on account

Part of the shock of a Self Assessment bill can come from payments on account.

These are advance payments towards the following year’s Self Assessment liability.

They are normally paid in two instalments, one on 31 January and the second on 31 July.

Each payment is usually half of the relevant previous year’s tax liability.

Payments on account normally do not apply if the previous year’s relevant bill was below £1,000 or if more than 80% of your tax was already collected outside Self Assessment.

If they do apply, our Payments on Account guide explains the mechanics in more detail.

Can you reduce your payments on account?

Payments on account are not necessarily set in stone.

If you genuinely expect your next tax liability to be lower, you can ask HMRC to reduce them.

Perhaps your profits have fallen, you have fewer clients, your business is winding down or your circumstances have changed.

Reducing the payments may ease short-term cash pressure.

But be sensible with the estimate.

If you reduce them too far and the final tax bill is higher than expected, HMRC can charge interest on the difference.

So the objective is not to reduce the payments as much as possible. It is to make them reflect a reasonable estimate of what you actually expect to owe.

Check whether the tax bill itself is correct

Before arranging how to pay, it is worth checking the return.

Have all the allowable expenses been claimed?

Were pension contributions dealt with correctly?

Did you include eligible Gift Aid relief?

Is there anything obvious that has been missed?

This does not mean searching for an artificial way to make the bill disappear. It means making sure you are paying the correct tax in the first place.

If you have recently submitted the return, you can normally amend a Self Assessment return within 12 months of the statutory filing deadline.

Once that amendment period has passed, different rules apply. In some circumstances, overpayment relief may still be available for up to four years after the end of the relevant tax year.

Do not create next year’s problem at the same time

If all your available cash goes towards clearing an old tax bill, it is easy to forget that another tax bill is already building in the background.

Where possible, start putting money aside for the next liability as well.

A separate tax savings account can help.

Each time customers pay you, move an appropriate percentage into that account.

That money then has one job: future tax.

If you put too much aside, you have a buffer.

If you put slightly too little aside, at least the majority of the bill is already covered.

What to do if you can’t pay your tax bill

File the tax return. Do not turn a payment problem into a filing problem as well.
Check the bill. Make sure the return and the tax calculation are correct.
Work out affordability. Review personal and business cash flow before agreeing a payment.
Check the online Time to Pay service. You may be able to arrange monthly payments without calling HMRC.
Contact HMRC if necessary. If you cannot arrange it online, discuss the position directly.
Review payments on account. Reduce them only if your expected tax liability genuinely supports it.
Act before penalties build up. Interest and late-payment penalties can make the debt more expensive.
Start preparing for the next bill. Put tax money aside as income comes into the business.

FAQs

What happens if I can’t pay my tax bill?

You may be able to arrange a Time to Pay plan with HMRC and spread the outstanding tax over monthly instalments. The arrangement depends on your circumstances and what you can afford.

Can I arrange HMRC Time to Pay online?

Some eligible Self Assessment taxpayers with debts below the online service limit can arrange Time to Pay through GOV.UK. If the online service is not available for your situation, contact HMRC.

How long will HMRC give me to pay?

There is no fixed maximum payment-plan length in HMRC’s current general guidance. The period depends on how much you owe and how much you can afford to pay each month.

Will HMRC charge interest while I am on a payment plan?

Yes, interest can continue to apply to the outstanding tax. Paying the debt more quickly normally reduces the total interest cost.

Can I reduce my payments on account?

Yes. If you reasonably expect your next Self Assessment liability to be lower, you can ask HMRC to reduce your payments on account. If you reduce them too much, interest can apply to the shortfall.

Can I change an old tax return to reduce the bill?

You can normally amend a Self Assessment return within 12 months of the statutory filing deadline. After that, other routes may apply, including overpayment relief in qualifying circumstances.

Episode Timecodes

00:00 – What to do when you cannot pay your tax bill
01:11 – You have filed the return but do not have the money
01:55 – Arranging Time to Pay with HMRC
03:04 – Understanding the HMRC debt-management role
03:50 – Working out what you can afford
04:27 – Payment arrangements and communication
05:23 – Late-payment penalties
06:10 – How payments on account work
07:19 – Reducing payments on account
08:29 – Reviewing previous tax returns
08:53 – Putting money aside for future tax
09:41 – Taking control of the tax situation

Related episodes and guides

Key takeaway

If you can’t pay your tax bill, deal with the problem rather than the panic.

Get the return filed, check that the bill is correct, understand what you can afford and speak to HMRC about a payment arrangement if you need one.

Then look forward as well as backwards.

Review your payments on account and start putting money aside for the next tax bill so today’s problem does not simply repeat itself next year.

Further Support

If you need help understanding your Self Assessment bill, reviewing your tax position or preparing before you speak to HMRC, you can contact us for an initial chat.

You can also use our free online business calculators to support your tax and cash-flow planning.

For more practical finance and tax support, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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https://www.ihatenumbers.co.uk/i-hate-numbers-book/

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Can’t Pay Your Tax Bill? What to Do Next