Skip to main content

What happens if I cannot afford to pay my tax bill?

Lucy Cohen
Updated

If you cannot pay your tax bill in full, it is important not to ignore it.

HMRC charges penalties and interest for late payment, but they will often agree a payment plan if you contact them in time.

The key is to act early.

What happens if you miss the deadline?

If you miss a payment deadline:

  • Interest starts to accrue from the due date

  • Late payment penalties may apply

  • You may receive reminder letters from HMRC

If a tax return is also filed late, separate filing penalties apply.

Ignoring the problem can lead to escalating penalties and enforcement action.

What is a Time to Pay arrangement?

If you cannot pay in full, you may be able to set up a Time to Pay arrangement with HMRC.

This allows you to:

  • Spread the tax bill over monthly instalments

  • Pay over an agreed period of time

Interest will usually still apply, but it can prevent further penalties if agreed in advance.

Guidance on payment plans is available here:
https://www.gov.uk/difficulties-paying-hmrc

When can you set up a payment plan?

You may be able to set up a plan online if:

  • You have filed your tax return

  • You owe less than £30,000

  • You are within 60 days of the payment deadline

  • You do not already have another payment plan in place

If you do not qualify online, you can contact HMRC directly to discuss your situation.

What HMRC will consider

HMRC will normally look at:

  • Your income and expenditure

  • What you can realistically afford each month

  • How quickly the debt can be cleared

They expect you to pay as much as you reasonably can.

Important things to remember

  • You must still file your tax return on time, even if you cannot pay

  • Setting up a plan is better than doing nothing

  • Missing payments under an agreed plan can cancel the arrangement

How to avoid getting into this situation

To reduce the risk of struggling with tax payments:

  • Set aside money regularly for tax

  • Understand payments on account

  • Monitor profit, not just cash

  • Plan ahead if profits increase

If you are concerned about an upcoming tax bill, it is better to review your position early rather than wait until the deadline passes.

Related to