For those whose sole income comes from employment, tax is deducted automatically, but if you are a self-employed sole trader, a partner in a business, or you take your pay via dividends, then you need to complete a Self Assessment tax return and arrange the payment of your tax yourself.

Key information about paying your tax bill

The important dates to remember for Self Assessment tax bills are the 31st of January for your balancing payment and the first payment on account, and the 31st of July for your second payment on account.

If you are able to pay your tax bill by the deadline, it is best to do so as soon as possible to prevent incurring interest and additional penalty charges. Bear in mind that some payment methods will take longer than others, and the deadline refers to when HMRC receives your payment, not when you initially send it.  

If you miss a tax deadline or know that you will not be able to pay an upcoming tax bill on time, you need to contact HMRC as there may be options available to you.

What happens if you can’t pay your tax bill?

If you can’t pay your tax bill and you do not contact HMRC or you refuse to pay, they may:

  • Ask a debt collection agency to collect the money on their behalf
  • Collect what you owe by deducting the amount directly from your wages or any monthly pension payments you get
  • Take you to court
  • Make you bankrupt

If you live in England, Wales, or Northern Ireland, HMRC may also claim your debt by:

  • Taking things you own and selling them, with any costs such as auction fees being added to your bill
  • Taking money directly from your bank account or building society savings

If HMRC does have to take any actions that will incur additional fees, you will be notified in advance and your rights, costs and options will be explained to you.

What action can you take if you know that you will not be able to pay your tax bill?

If you know in advance that you can’t pay your tax bill, then you should contact HMRC immediately to set up a Time to Pay arrangement, under which you will be able to pay your bill in instalments rather than as one lump sum.

The Time to Pay arrangement can be set up online, providing you owe less than £30,000, plan to pay it off within the next 12 months, and have filed your latest tax return declaring the amount you owe. The Time to Pay Arrangement can be set up in advance of the deadline or within 60 days of the deadline.

The Time to Pay arrangement can help you to spread the cost of what you owe, meaning you can pay the money back without leaving yourself in a compromised position financially.

To set this up as a manageable repayment arrangement, HMRC will take into account any other taxes you need to pay, how much money you earn, your average monthly outgoings, and what savings or investments you have that can help you to pay off your debt.

You will usually be asked to pay around half of whatever is left over each month, once rent, food, utility bills and fixed outgoings (such as subscriptions) have been deducted until your debt is paid.

If your situation changes in a way that affects your Time to Pay arrangement, you can contact HMRC to either extend or reduce the length of your arrangement, by increasing or decreasing the amount you pay each month. The quicker you can pay your debt, the better, as interest is added to your bill each month.

If you cannot set up the Time to Pay arrangement online, you must call the Self Assessment helpline. 

What happens if a Time to Pay arrangement is not an option?

If HMRC believes you will not follow a repayment plan because you have not paid taxes in the past, they may refuse you a Time to Pay arrangement and instead use one of the methods above to collect the debt in full.

It is important that you call the Self Assessment helpline if you have any questions so you can discuss the support available. Trying to avoid the situation will only result in further financial penalties and possibly more severe consequences.

In most situations, if you can’t pay your tax bill, there are repayment options available to you. However, it is always best if you can pay your bill in full, by the deadline. 

The best way to do this is to hire a personal accountant who can help to manage your finances in a way that takes your end of year tax into consideration. If this is something you would be interested in, please do get in touch with us.