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

1. File the tax return. Do not turn a payment problem into a filing problem as well.
2. Check the bill. Make sure the return and the tax calculation are correct.
3. Work out affordability. Review personal and business cash flow before agreeing a payment.
4. Check the online Time to Pay service. You may be able to arrange monthly payments without calling HMRC.
5. Contact HMRC if necessary. If you cannot arrange it online, discuss the position directly.
6. Review payments on account. Reduce them only if your expected tax liability genuinely supports it.
7. Act before penalties build up. Interest and late-payment penalties can make the debt more expensive.
8. 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

• How to Budget for Your Tax Bill When You're Self-Employed
• Payments on Account Explained
• File Your Tax Return Early: Know Your Bill and Plan Ahead

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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Hi folks, and welcome to another episode of I Hate Numbers. This is the podcast that's got a simple mission. It's to help you and your business make more money, reduce your stress and anxiety, help you win that battle that goes on between your ears and have the business life that you aspire to. My name is Mahmood.

I'm your business finance fixer, accountant, tax advisor and author. And today I'm going to be diving deep into a topic that can, if we let it, give sleepless nights. What do you do if you can't pay your personal tax bill? But don't worry, I'm going to look after you. And by the end of this episode, you will have a clearer path as to how to tackle this issue and reduce

Any tax related stress.

You're listening to the I Hate Numbers podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number loving care is what it's about. Tune in every week. Now here's your host, Mahmood Reza.

So what do you do if you find yourself in a situation where you filed your personal tax return, that's one big task out of the way, but you just don't have the funds to pay for it. Well, worry not my friends. I've got some tips and advice to help you navigate this tricky situation. It's a situation that will happen to the best of us.

Now, first things first, if you've completed and filed your tax return and you realize you haven't got the money, you haven't got the funds to pay HMRC by the due date. And please do not panic, stress will not solve anything. It will only make matters worse, it will only give you undue anxiety. So you need to take a pause, take a deep breath and follow these steps.

Now, if funds aren't there, if you haven't put money aside to take care for that tax, then you must arrange a time to pay arrangement directly with HMRC. Now for those of you who filed your tax return some time ago, and that's before the 31st of January, year end date, then online is the way to go. Now for the online mechanisms, so you don't have to have any conversations with HMRC.

You don't have to worry about making sure that the operation at the other end is not going to be too unfriendly. You don't have that fear and phobia if you want to avoid that then online is the way to go. But unfortunately the online facility is available to those people who file 60 days at least before the filing deadline of 31st of January, have no current issues with any outstanding debts, their affairs are bought up to date and those conditions apply.

Then you can make that payment arrangement online. If you've missed the opportunity for this year, 23 to 23, then bear it in mind for the following year. Obviously, ideally, make sure you've got money to put to one side to take care of future tax obligations. More of that towards the end of the podcast.

Now, before you pick up that phone, before you contact HMRC, remember this. The people who collect the taxes are not the same people as who assess them, they've got different objectives, different challenges. So try and have some empathy and some sympathy for the tax collector for debt management. That may not be the easiest thing in the world to do, but they have a job to do.

They’ve got targets, they've got directions, and therefore their primary job is to make sure they collect the money that they see that's owed to HMRC. So have that separation in your mind between the tax management department and the people who assess the tax. Two completely separate operations. Now when you're preparing for your conversation with HMRC, initially consider your affordability.

Look at your personal, look at your business cash flow, look at your tax debt and assess what your financial situation looks like. A budget, a cash flow is a must, by the way, to understand what is going to come into your business, what's going to come into your household, after paying for those essential items, after paying for those ongoing costs.

You need to help assess your affordability and how much, dare I use that phrase, spare cash that you actually have. In the show notes by the way folks, there is a link to a fantastic online cash planning platform called BudgetWhizz. Have a look at that, and that's a great way to help budget and to manage your business cash flow.

Let's get back on with the podcast. HMRC, as a default rule, will typically go for at least a six month payment arrangement without too many problems. If they know you can't pay immediately, they know you don't have the funds, you've tried your best to get those funds together. Then they'll know what efforts obviously you've made to raise the money and think of HMRC as just a slightly bigger beast of a supplier.

If you've fallen into arrears with any supply for goods and services, naturally they want to get their money in as quickly as possible. But if you build up a good relationship, if you've got a good rapport and you communicate with them, they're likely to be more flexible and receptive to those payment terms.

If you're in business and you are invoicing clients, think about what happens when you don't get paid. So therefore have some degree of empathy and some degree of understanding. Now you can sometimes extend the arrangement for up to a year. We have clients that we've looked after and we've managed to get payment arrangements extending beyond the year.

Typically those will be in exceptional circumstances, but each case is dealt with differently. Now absolutely essential folks, you must make any arrangement with HMRC by the 28th of February, 2024. So if we're talking about the 22-23 tax year, make sure you contact and make an arrangement by that date.

Failing to do so could result, and will normally do so, in a 5 percent penalty surcharge for non payment. It's a flat fee, not an annual cost. Late filing penalties for missing payments are also possible if you don't communicate with HMRC. Unfortunately, HMRC these days are getting a bit more assertive and will be imposing late filing penalties, late payment penalties, so you do not want to have those on your tax record.

You do not want your bank account depleted by unnecessary penalties. Now, let's talk about a topic that's been flagged up before, I've spoken about before, but it's about payments on account. Now, the general rule about payments on account is if your tax bill exceeds 1,000 pounds, you will trigger by default

what's called payments on account. This is basically paying money up front towards the following year's tax bill. You need to pay half of that money up front by the end of January and the next half by the following July 31st. So, typically, if your tax bill has been two grand, not only will you have to pay HMRC the 2,000, but you'll also have to pay half of that by the 31st of January and the next instalment by the 31st of January 2024.

And that's payment up front towards your tax bill, by the way. So when it comes to next year and you complete your tax return, you've already paid that money up front. Now here's the good news though with payments on account, these are not cast in stone. If you anticipate your income is going to be lower in the following tax year, perhaps you've got less clients, perhaps you're winding down, perhaps you're changing jobs, perhaps you've got more expenses,

there could be a number of reasons as to why your income may be dropping in the following year, you can elect to reduce those payments. Now this flexibility will relieve some financial stress, but remember you need to calculate reasonably accurately because if you underestimate significantly or even minorly your payments on account, if you're going to reduce them, remember you will be charged interest on those underpayments.

However, the flexibility of being able to reduce your payments on account can relieve financial stress. My personal advice would be the earlier you submit your tax return, the earlier you know what your liability is. And the earlier you know what those payments on account are with more accuracy. If you don't estimate your payments on account accurately, any underpayment will incur an interest charge of 7.75%

Ouch! That's a high interest charge to pay yourself. I would do the payments yourself or consult your accountant who should be able to come up those estimates for you. If you're hitting a brick wall and you can't get that help, then check out the contact form and see where we can help you. Now before we wrap up, consider reviewing your previous tax returns.

You have a window you can go back at least four tax years to make any necessary claims or adjustments. You may not have claimed expenses in prior years, you may not have claimed things like gift aid, you may be a higher rate taxpayer and forgotten to claim pension contributions you're making privately. There could be a number of issues that have arisen previously that you've not been aware of or it's been overlooked.

If you're unsure, don't hesitate to contact a competent and experienced accountant for guidance. Now in summary, don't let tax related stress get the better of you. Review your return, make payment arrangements, payments on account if needed, and remember, ideally put money aside for future tax payments. We would normally advise clients to put a certain percentage of what they invoice their clients away, put it into a separate account, ideally put into a separate account that accrues interest.

And at the end of the year, you've collected the money that hopefully will equate to the tax that you owe. If you've over collected, then you've got a bonus there. If you've under collected, then at least you've collected the majority of the money towards that future liability. I hope you found this episode useful, folks, and if you did, please share it with anyone who might benefit.

But until next time, keep that stress level down and take charge of your tax situation. Relax and let somebody else do the tax. Until next week, keep those stress levels down. 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.