Cannot Pay Your Tax Bill? What to Do Before HMRC Takes Action

What Should You Do If You Cannot Pay Tax Bill?

1. Check the tax bill and due date.
2. File any outstanding tax return, even if you cannot pay.
3. Pay as much as you can without creating greater financial hardship.
4. Review whether the liability can legitimately be reduced or corrected.
5. Prepare details of your income, expenditure, savings and assets.
6. Check whether HMRC’s online payment-plan service is available.
7. Contact HMRC promptly if you cannot arrange payment online.
8. Keep records of calls, letters, proposals and agreed instalments.

Filing and payment are separate obligations. Delaying a return because you cannot pay may create additional filing penalties without solving the payment problem.

First Check Whether the Tax Bill Is Correct

Before asking HMRC to spread the debt, confirm that the amount is genuinely due. An incorrect return, duplicated charge, unallocated payment or excessive payment on account should be addressed differently from a valid bill that is unaffordable.

• The tax year and payment deadline
• The submitted return and tax calculation
• Payments already made
• Tax deducted through PAYE or at source
• Payments on account
• Available losses, reliefs and allowances
• HMRC amendments, penalties and interest
• Whether a payment has been allocated to the wrong tax or period

In some cases, this review reveals the opposite problem entirely an overlooked overpayment from an earlier year, which follows its own separate process for getting the money back.

When a Payment-on-Account Reduction May Be Appropriate

If your expected Self Assessment liability is genuinely lower than the previous year’s figure, you may be able to reduce payments on account. This is not the same as Time to Pay.

• A reduction claim changes an advance estimate because the expected liability has fallen.
• Time to Pay spreads a valid debt because you cannot afford to pay it in full.

Do not reduce payments on account solely because cash flow is tight. HMRC may charge interest where the reduction proves excessive.

Contact HMRC Before the Position Escalates

HMRC can work with taxpayers who cannot pay in full and on time, aiming to find a way to clear the debt as quickly as possible at an affordable rate. If HMRC contacts you, respond promptly.

• Increase the chance of agreeing manageable instalments
• Help prevent avoidable enforcement
• Allow HMRC to understand temporary cash-flow problems
• Reduce the risk that letters or calls are treated as non-engagement
• Protect against some late-payment penalties where the relevant rules are met

A phone call or online application is not enough unless HMRC accepts the arrangement. Keep confirmation of the agreed terms.

Can You Set Up a Payment Plan With HMRC?

If you cannot afford to pay a tax bill, HMRC may agree a Time to Pay arrangement. This allows the debt to be cleared through instalments, usually by Direct Debit.

• The tax and periods included
• Any initial payment
• The monthly instalment
• The collection dates
• The repayment period
• Your responsibility for future returns and bills

HMRC will check whether the arrangement is affordable. If no acceptable plan can be agreed, it may require payment in full and continue recovery action.

Can You Set Up a Tax Payment Plan Online?

Eligible Self Assessment taxpayers may be able to arrange payment online without speaking to an adviser. HMRC currently promotes the online route for qualifying Self Assessment liabilities of up to £30,000.

A cannot pay tax bill online search often leads taxpayers to HMRC’s payment-plan service. Before using it, the relevant return must normally be filed and the debt must appear on the HMRC account.

• The amount owed
• Whether returns are outstanding
• Whether other HMRC debts exist
• Whether another arrangement is active
• The proposed repayment period
• Whether Direct Debit can be used

If the online service does not accept the request, contact HMRC. Being ineligible for self-service does not automatically mean a negotiated arrangement will be refused.

What If You Owe More Than £30,000?

You can still ask HMRC for Time to Pay, but you will usually need to speak to an adviser and provide fuller financial details.

• Employment, business, rental and pension income
• Household and business expenditure
• Bank balances and savings
• Investments and property
• Business stock, vehicles and equipment
• Money owed to you or the business
• Other creditors
• Future tax liabilities

What Information Will HMRC Expect?

Prepare a realistic summary of your financial position. HMRC may expect savings and available assets to be used to reduce the debt as far as reasonably possible.

• Your Unique Taxpayer Reference or relevant tax reference
• The amount and type of tax owed
• The cause of the payment difficulty
• Monthly income and essential expenditure
• Current bank balances
• Savings, investments and assets
• Loan and creditor payments
• The amount you can pay immediately
• The highest sustainable monthly payment
• Expected changes in income or costs

How HMRC Assesses Affordability

HMRC does not use one standard instalment formula for every taxpayer. It considers what is left after reasonable essential costs and how quickly the debt can realistically be cleared.

• Whether the problem is temporary or ongoing
• Whether income is likely to recover
• Whether spending can reasonably be reduced
• Whether savings or assets are available
• Whether the business remains viable
• Whether future taxes can be paid on time
• Whether previous arrangements were maintained

How Long Can HMRC Give You to Pay?

There is no universal maximum period for every directly negotiated plan. The duration depends on the amount owed and what you can afford each month. Some online Self Assessment arrangements are designed to clear the debt within 12 months, while longer directly negotiated plans may be considered where the evidence supports them.

Does a Payment Plan Stop Late-Payment Interest?

No. Interest normally runs from the original due date until the tax is paid, even where HMRC agrees instalments.

Since 6 April 2025, HMRC’s standard late-payment rate has been calculated using the Bank of England base rate plus four percentage points. The published rate was 7.75% from 9 January 2026, but rates can change.

Illustrative Interest Example

If £10,000 remained outstanding for one full year at an unchanged illustrative rate of 7.75%, simple interest would be approximately £775. In practice, monthly payments reduce the balance and the applicable rate may change during the period.

What Late-Payment Penalties Can Apply?

Existing Self Assessment Penalties

• 5% of unpaid tax at 30 days
• A further 5% of tax still unpaid at six months
• A further 5% of tax still unpaid at 12 months

Interest is separate. An acceptable Time to Pay proposal made on or before the first 30-day trigger can prevent these late-payment penalties where the agreement is maintained.

Making Tax Digital Penalties From 2026/27

Some sole traders and landlords joining Making Tax Digital for Income Tax from 6 April 2026 move to a newer penalty system for the tax year in which they join.

• 3% of tax outstanding at day 15
• A further 3% of tax outstanding at day 30
• An annual penalty rate of 10%, calculated daily from day 31

In the first year of the new system, taxpayers generally have 30 days from the due date to pay or approach HMRC for an arrangement before late-payment penalties apply. Interest still starts from the original due date. Existing rules continue for earlier tax years, including the 2025/26 return due on 31 January 2027.

What Happens If You Do Nothing?

If you cannot pay tax bill HMRC correspondence should never be ignored. HMRC will normally try to contact you through letters, messages, telephone calls or visits.

• Ask a debt collection agency to collect the money
• Collect money directly from wages or pension income
• Take control of goods and sell them in England, Wales or Northern Ireland
• Recover funds directly from bank or building society accounts where legal conditions are met
• Take court action
• Start bankruptcy proceedings
• Seek to close a company where the debt is a business liability

HMRC Debt Collection Agencies

HMRC may pass a debt to an approved collection agency. Verify unexpected contact through official HMRC channels before disclosing bank details or making payment, as tax-payment scams often create urgency or threaten immediate arrest.

Direct Recovery From Bank Accounts

In England, Wales and Northern Ireland, HMRC can use direct recovery powers to take money from certain bank and building society accounts where statutory conditions are satisfied.

Deductions From Wages or Pensions

HMRC may recover some debts through a PAYE tax code, wages or monthly pension income where the relevant rules and limits allow.

Taking Control of Goods

HMRC can use enforcement officers to take control of goods in England, Wales and Northern Ireland. Goods may ultimately be sold to clear tax, interest, penalties and enforcement costs.

Court, Bankruptcy and Company Winding Up

Serious or persistent non-payment can lead to court action, bankruptcy proceedings against an individual or winding-up proceedings against a company. Seek immediate professional debt or insolvency advice if HMRC has issued formal court or insolvency documents.

Cannot Pay a Self Assessment Tax Bill

• A balancing payment
• The first payment on account
• The second payment on account
• Interest and penalties
• Other amounts included in the tax calculation

File the return first, check whether the payments on account are accurate and then consider the online payment-plan service.

Cannot Pay Corporation Tax

A limited company that cannot pay Corporation Tax should contact HMRC promptly. HMRC will consider whether the company is viable and can meet both the arrangement and future liabilities. Directors should seek insolvency advice if the company cannot pay debts as they fall due.

Cannot Pay VAT

Submit the VAT return on time even if the tax cannot be paid. VAT uses a separate late-payment penalty system, and late-payment interest runs from the day after the due date.

Cannot Pay PAYE or CIS

Employers should submit all payroll and Construction Industry Scheme returns on time and contact HMRC about unpaid PAYE, National Insurance or CIS deductions.

Can You Make Part-Payments?

Yes. Paying part of the balance reduces the amount attracting future interest. However, making occasional payments without an accepted arrangement does not automatically prevent penalties or enforcement. A part-payment can typically be made quickly online using a debit card, which is often the simplest way to reduce the balance while you arrange a longer-term solution.

What If You Miss an Agreed Instalment?

Contact HMRC immediately. It may ask why the payment failed and whether the arrangement needs to be revised. If you do not respond, HMRC may cancel the plan, restart enforcement and apply penalties according to the relevant rules.

Can a New Tax Bill Be Added to an Existing Plan?

Contact HMRC as soon as you know another bill cannot be paid. HMRC may review the arrangement and consider including the new liability, but this is not automatic.

What If HMRC Refuses Time to Pay?

• Returns are outstanding
• Available funds or assets could reduce the debt
• The proposed instalment is too low
• The repayment period is unnecessarily long
• The proposal ignores future liabilities
• The business is not viable
• Earlier arrangements have repeatedly failed

When to Seek Debt or Insolvency Advice

• You owe several creditors, not only HMRC
• You are using borrowing to pay routine taxes
• Your business cannot meet wages or suppliers
• HMRC has threatened bankruptcy or winding up
• Enforcement officers have attended
• You cannot fund future tax while repaying old debt
• The proposed Time to Pay instalments are unaffordable

Common Mistakes When You Cannot Pay Tax

• Ignoring HMRC letters and calls
• Failing to file the tax return
• Assuming an online request is automatically accepted
• Offering an instalment that cannot be maintained
• Believing interest stops under Time to Pay
• Confusing cash-flow difficulty with a valid payment-on-account reduction
• Failing to budget for new tax bills
• Making payments with the wrong reference
• Cancelling a Direct Debit without contacting HMRC
• Waiting until court or insolvency action starts

Practical Checklist Before Contacting HMRC

1. File all outstanding returns.
2. Download the HMRC statement.
3. Check payments and tax calculations.
4. List every tax debt and due date.
5. Prepare monthly income and expenditure figures.
6. Identify available savings and assets.
7. Calculate what can be paid immediately.
8. Propose the highest sustainable monthly instalment.
9. Forecast future tax liabilities.
10. Keep written confirmation of any agreement.

Many of these checks, along with making any payment you can afford, can be done quickly on the move using the HMRC app rather than needing a desktop login.

Final Guidance If You Cannot Pay Tax on Time

If you cannot pay your tax bill, taking action before HMRC escalates recovery can materially improve the options available. File all returns, confirm the debt, pay what you reasonably can and contact HMRC with an affordable proposal supported by accurate information.

A payment plan does not normally stop interest, and no arrangement should be assumed until HMRC confirms it. However, early engagement can help manage a late tax payment, limit some penalties and reduce the risk of debt collection, court action or insolvency proceedings. Once your position is under control, it’s worth building a review of outstanding tax debts into your regular pre-tax year-end planning so the same situation is less likely to recur.

Cannot Pay Your Tax Bill Case Study

Lisa, the owner of a small retail business, visited our Fulham office after realising she would be unable to pay her Self Assessment tax bill before the deadline. A combination of rising business costs and several late customer payments had created a temporary cash-flow problem, and she was worried that missing the payment would immediately lead to HMRC enforcement action.

After reviewing Lisa’s tax position, we first confirmed that the amount due was correct and that no reliefs or payment-on-account adjustments had been overlooked. We then helped her prepare a realistic summary of her income, expenditure and available funds before discussing the possibility of requesting a Time to Pay arrangement with HMRC. We also explained that although an agreed payment plan could help spread the liability, late-payment interest would normally continue until the balance was fully settled.

During the consultation, Lisa was relieved to learn that contacting HMRC before missing the payment deadline generally provides more options than waiting for recovery action to begin. By acting early and presenting accurate financial information, she was able to approach HMRC with a credible repayment proposal.

By the end of the meeting, Lisa understood the steps needed to manage her tax debt responsibly, minimise additional penalties where possible and avoid unnecessary escalation.