What to do if you can’t pay your tax bill is a challenge many face, but there are solutions. Firstly, it’s important to stay calm and take action immediately. Ignoring the issue will only make matters worse. Additionally, remember that tax authorities are usually willing to help when approached. Communication is key.

Options to Manage Your Tax Bill

When you find yourself unable to pay, there are several options to consider. For instance, you could arrange a payment plan with the tax authorities. This method, known as a Time to Pay Agreement, allows you to spread payments over time. Moreover, it’s crucial to have an open dialogue with the tax office to explain your situation.

Alternatively, you could explore ways to reduce your tax liabilities. For example, checking if you qualify for reliefs, deductions, or allowances could lower the amount owed. Equally, reviewing your financial situation may help identify areas where you can free up cash to meet your obligations.

Steps to Take Immediately

Before taking any action, calculate the total amount owed to avoid confusion. Then, prioritise reaching out to your tax office, as they can offer guidance tailored to your circumstances. Furthermore, if you cannot resolve the issue directly, consulting a financial advisor can provide clarity and direction.

Another important step is to avoid late filing or non-payment penalties. Consequently, even if you can’t pay the full amount, submitting your tax return on time is vital.

The Bigger Picture

What to do if you can’t pay your tax bill involves more than immediate solutions. Planning ahead ensures you avoid such situations in the future. Setting aside funds regularly or seeking professional advice can help you better manage tax obligations.

Finally, understanding your options is the first step towards resolving financial difficulties. Listen to the I Hate Numbers podcast for practical tips and expert advice to help you tackle tax challenges with confidence.

The 31st of January, 2025 marks two important milestones. Milestone number one, it's the end of the 23-24 tax year filing. And it's also my 30th anniversary of being in business as an accountant, tax advisor, and educator. One of the most common questions that I get asked in my capacity as a tax advisor is what do I do if I can't pay my tax bill?

In this week's I Hate Numbers podcast, I'm going to be talking to you about what you do if you can't pay that tax bill. I'm going to identify nine things you should be thinking about at least and my opening gamut is folks don't panic as that famous Second World War Comedy program, Dad's Army says, don't panic, don't panic.

Let's crack on with the podcast.

If you are worried because you can't pay your UK personal tax bill, please remember you're not alone. Many, many people find themselves in this situation at some point in their lives. The key thing here is not to panic. There's always going to be help available and Her Majesty's Review and Customs, despite the perception, will provide solutions to make your life and your situation much more manageable.

If you take action sooner rather than later, you can reduce your stress, minimise any additional penalties that might be levied, and have a clear path to settling your debt. What's the first thing that one should do? First of all, be aware and appreciate there is a problem, but above all, stay calm. Panic does not resolve anything.

It's very easy to feel overwhelmed when you know you can't pay your tax bill in full. Please don't take on board those people saying you should have had the money anyway. Ignore them. Your situation is your situation. Now you might get stressed out about late payment penalties, interest charges, or potentially recovery and legal action if you decide to ignore HMRC completely.

However, ignoring the problem usually makes it worse, it doesn't make it better. So keeping calm, keeping your wits about you is the first step. HMRC does understand that people can run into difficulties and they are going to be willing to work out a payment plan where they can, if you show that you are indeed serious about settling what you owe.

And instead of letting that fear build up, focus on what your next steps are. Now secondly, check whatever HMRC are publishing. So for example, if you realise you can't pay, it's a good idea to look at the official HMRC website. The web address is at gov.uk forward slash difficulties paying HMRC. And they present, hopefully, clear information.

And when I say hopefully, they do pretty much here. They are getting better. Clear information on payment options and what help you can actually get. They're not going to pay your tax bill for you, by the way. They're just going to offer you solutions if you can't pay it all immediately. The website will point out something called a time to pay arrangement.

Lets you know what happens if you can't pay and being armed with knowledge, put you in a better way to control and navigate towards the right solution. Now thirdly, you need to understand why your tax bill is as it is. Your advisor or dealer should explain that to you. Certainly for all our clients that we look after, we'll always give them an explainer video and explain how the bill was made up, what the competition is, and where we can address what's called payments on account.

But that's a topic for another time. Now those tax bills can be confusing. So before you pick up the phone to speak to HMRC, and decide what you want to do next. Make sure you've got a good understanding and overview of what your tax bill is, how it's made up. Your self-assessment return - any letters that you've received will confirm how much you owe.

You should ideally have a personal tax account that you can access to actually see what's going on. There, in theory, should be due dates that are made clear. They will make a mention of interest and penalties. If you think it's been incorrectly charged, there's been a mistake, or you're not quite sure why the amount is high, make sure you talk to your tax advisor, your accountant.

If you don't have a current advisor, probably this is the time to start having a look round. Accountants, tax advisors will spot those mistakes with something that may have been incorrectly calculated, tax reliefs that may have been omitted or not claimed for, especially if you've done it on a DIY basis, that will affect your bill to the positive.

The next thing, number four, make sure that you contact HMRC as soon as possible. Now your return needs to be filed before you can have a discussion with HMRC. They won't know what's going on until that record has actually been submitted. You can call the support number. Please bear in mind the volume of traffic they get and the resources they have at the moment.

The wait could average from anything from 30 minutes upwards, so make sure it's a time of day that you've got the time capacity to talk to them. I would recommend nothing harder than coffee or tea until after that conversation has been had. The earlier you speak to them, the more likely you are to reach an affordable arrangement.

Be honest. They will ask questions of you. Explain your situation honestly. Why you can't pay. Perhaps that payment on account has shocked you. Perhaps you put money away but you've had to spend it. Perhaps you've not been in a situation for a number of reasons to not put money aside as you've gone along.

So we want to understand why the situation has arisen in the first place. Now they're not making judgment calls on here, but they ultimately are collecting public funds. So they need to make sure that when they make a decision, that it can be validated and verified. Now HMRC will deal with people from all walks of life, even people who on surface have got money behind them, may get tax bills which shock the system.

Some people may have less healthy financial positions, but they're going to be used to dealing with people from every dimension. Number five, ask about that time to pay arrangement. And when I say ask about it, you can actually do this online if you wish. If you prefer not to have that phone call with HMRC, then there is the option to arrange your payment yourself online as a heads up.

The main things are the tax debt has got to be up to 30,000 – it can’t be over. You've got 60 days from the time it's due to make that arrangement. You've got no outstanding arrears or issues going on. Now time to pay is as it says, it's like having that liability, that amount you've got to pay and you spread it over a period of time.

On average, up to six months is normally not a major problem. They will expect you to be able to make your next payment on account if you do have one. You will, unfortunately, have interest, by the way, charged on that late tax. If the tax is not fully settled by the 31st of January, anything outstanding will be charged interest.

Currently, interest rates are just over seven percent on late payments of tax, so weigh that up in case you've got alternative funds you can use to settle the tax debt. What you will avoid though, and what you will mitigate, is late payment penalties. As a heads up by the way, if you don't make that time to pay arrangement, contact HMRC by the 28th of February, after the end of the tax year, you will be charged a 5 percent penalty surcharge.

If you delay much longer, up to five months, then you will be charged another 5 percent and that's going to be quite painful, especially if your bill is quite high. Payment plans, conversations with HMRC will stop the clock on penalties. Now when you do talk to them, they are going to want to know what your monthly income, outgoings and other financial obligations are as well.

And they want to make sure you've considered what's going on in your own budget, your household budget, et cetera, before you make a commitment to that payment. The next thing that is worthwhile doing is to review your own budget. Now, before you speak to HMRC or after you speak to them, or ideally at both times, have a look at your personal finances.

We do cash flow forecasting in our business, or we certainly should do, do one also for your household. Look at your income sources, where that money comes from. the outgoings that are there, are there costs that you can challenge, look at your utility bills, the regularity of those payments, insurance, transportation, and all your other commitments, and you're basically trying to figure out what's your spare, if I can use such a term, cash that you have each month that can contribute towards your tax bill.

HMRC, it's not unusual for them to ask that question. Can you borrow the money to fund that debt? So be aware of these questions that are going to be asked. They're like any supplier. If you're in business and you owe money to a supplier and you haven't got the cash, they're going to be asking the same question of you as you would do of your customers.

Number seven, seek professional help. And I don't mean for your wellbeing. I mean, in the world of accounts and tax. If you aren't sure how to handle your tax debt, if you don't have that confidence, you're not quite sure what you do, then you need to speak to an accountant or a tax advisor. It's not unusual that over 30 years, I've had people contact me for help who aren't actually clients at the time.

They've submitted their own tax return, somebody else has submitted their tax return, they got themselves into a pickle and they seek that independent help and advice. Bear in mind though, professional advice comes for a fee. They're relieving your stress and anxiety in the long run. They can check that you've claimed all the possible allowances or reliefs, make sure your self assessment is correct, strengthen your negotiation with HMRC, and help you plan for future tax bills so you don't end up with the same position.

In a worst case scenario, if you're struggling with other debts, things like step change, citizen's advice, can provide guidance to help you manage your overall financial situation. Now, a last couple of points to flag up. Keep talking to HMRC. So, once you've got a payment plan in place, life changes, circumstances come in.

Ideally, you stick to that payment plan, but if your circumstances change, again impersonating an ostrich, hiding under the tax duvet of life, does not help anybody. Your circumstances can change for the positive, they can go down for the negative, if perhaps, fou might lose your job, your income drop from a client or customer, you get unexpected bills at home.

All those things will vary your situation, so make sure you stay in touch and don't panic. Look ahead and plan for next year. If this experience has actually bitten you where it shouldn't do, certainly I would suggest going forward, if you are self-employed, every time you invite a client, put a proportion of that tax away into a separate savings account.

You'll accumulate interest and you'll have the money there to pay the tax when it's due. The thing about self-employment is that you are your own tax collector. You're not in employment where that tax is paid as you go along, but you need to make sure that money is put to one side. It's not your money.

You need to make sure it's there for the HMRC. Now, what can we say in conclusion? Not being able to pay your tax bill may feel terrifying, but remember, don't panic. Act quickly. Contact HMRC. They are, in my experience, very receptive. If you're straight with them, you don't avoid them, you confront it head on, you will find, yes, there's going to be interest charged, but it's better than ignoring it and getting interest and penalties levied where they don't need to be.

Folks, I hope you found this useful. I'd love to hear your thoughts on this one. If you think somebody can benefit from this podcast, then by all means, I'd love it if you could share it with them. Until next time, happy managing debt. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.