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Cannot Pay Your HMRC Tax Bill? Do This

If you cannot pay your HMRC tax bill on time, the worst thing you can do is ignore it. HMRC has a range of options available — but only if you act quickly and communicate early. This article explains what steps to take, what penalties to expect if you do nothing, and how to protect your finances while you work through the problem. It applies to sole traders, limited company directors, landlords, and anyone else with an outstanding tax liability.

Act immediately — do not wait

The single biggest mistake people make when they cannot pay a tax bill is doing nothing. HMRC treats silence as non-compliance. The longer you leave it, the more penalties and interest stack up — and the fewer options you have.

As soon as you know you cannot pay in full or on time, contact HMRC. They deal with payment difficulties every day. They would far rather set up a payment plan than chase a debt through enforcement action. That is not a charitable impulse — it is practical for them too. So get ahead of it.

What is a Time to Pay arrangement?

A Time to Pay (TTP) arrangement is a formal agreement with HMRC that lets you spread your tax debt over a series of monthly instalments. It covers most types of tax, including:

  • Self Assessment income tax
  • VAT
  • PAYE and National Insurance
  • Corporation tax
  • CIS deductions

There is no fixed maximum amount, and HMRC will consider arrangements for debts of almost any size. What matters is that you can demonstrate you genuinely cannot pay in full right now, that you are not simply choosing not to, and that the instalments you are proposing are realistic.

Interest still accrues during a TTP arrangement — currently at HMRC’s statutory rate, which is linked to the Bank of England base rate. Check HMRC’s website for the current rate, as it changes. But agreeing a TTP stops further surcharges and penalties from building up, which makes it well worth doing.

How to apply for Time to Pay

How you apply depends on what type of tax you owe and how much.

Online self-serve (Self Assessment debts up to £30,000)

If you owe up to £30,000 in Self Assessment tax and file on time, you can set up a payment plan yourself through your HMRC online account. You do not need to speak to anyone. You can spread the debt over up to 12 months, choose your payment dates, and start immediately.

Phone HMRC directly

For larger debts, or if the online route is unavailable to you, call HMRC’s Payment Support Service on 0300 200 3835. Have the following ready before you call:

  • Your Unique Taxpayer Reference (UTR) or VAT registration number
  • Details of the tax bill you cannot pay
  • Your income and expenditure figures — HMRC will ask about your financial position
  • Details of any savings or assets you hold
  • A realistic proposal for monthly payments

HMRC will assess your ability to pay. Be honest and thorough. If you understate your income or overstate your costs, the arrangement may be rejected or cancelled later.

Before you call

Prepare a simple budget showing what comes in and what goes out each month. HMRC needs to see that the monthly amount you are offering is genuinely the most you can afford — but not so low that it takes years to clear the debt. Plans of up to 12 months are straightforward. Plans beyond that require more justification.

Time to Pay for Self Assessment bills

The 31 January deadline for self assessment tax payments catches many people out. If you have had a good year, your bill can be significantly higher than expected — especially if you also have a payment on account due on the same date.

If you cannot pay by 31 January, you will face a 5% late payment penalty if the debt is still outstanding after 30 days, then again at six months, and again at 12 months. On top of that, interest starts on 1 February. Acting fast limits the damage.

If your bill is under £30,000 and you filed your return by 31 January, use the HMRC online payment plan tool — it is quick and straightforward. If you missed the filing deadline too, you will need to call HMRC instead.

Sole traders with fluctuating income often find cash flow planning difficult. Keeping proper bookkeeping records throughout the year means you can track your tax liability as it builds — rather than being surprised by a large bill in January.

What about VAT and PAYE?

VAT

If you cannot pay your VAT returns liability on time, contact HMRC before the due date. HMRC applies a late payment penalty regime for VAT debts — a 2% charge after 15 days, rising to 4% after 30 days, and a further daily rate after that. The sooner you make contact, the more of this you can avoid.

HMRC can agree a TTP for VAT, but they tend to be less flexible here than with income tax, partly because VAT is a collected tax — you have already charged it to your customers. That is money HMRC views as held in trust. If you are struggling with VAT regularly, it is worth looking at whether your cash flow processes need to change.

PAYE and National Insurance

If you run a payroll and cannot pay PAYE or employer National Insurance on time, HMRC will charge interest and may issue a formal notice. Again, contact HMRC before the deadline wherever possible. A TTP for PAYE is possible but HMRC will want to understand why you are not ringfencing payroll taxes from your operating funds.

CIS deductions

Contractors in the construction sector who manage CIS returns face the same rules as PAYE when it comes to late payment. CIS deductions are due to HMRC on the 19th of each month following the tax month. If you cannot pay, call HMRC’s employer helpline promptly.

Corporation tax and Time to Pay

Limited companies pay corporation tax nine months and one day after the end of their accounting period. If your company cannot pay by that date, you need to contact HMRC’s Payment Support Service before the deadline — or as soon as possible afterwards.

In 2026/27, the small profits rate of corporation tax is 19% on profits up to £50,000, rising to 25% on profits over £250,000, with marginal relief applying in between. If your company has had an unexpectedly profitable year and cannot cover the bill, HMRC will consider a TTP — but they will want to understand why profits did not generate sufficient cash to meet the liability.

Directors should also be aware that overdrawn director’s loan accounts and other balance sheet factors can affect HMRC’s assessment of the company’s ability to pay.

Penalties and interest if you miss the deadline

Here is what happens if you do nothing:

Self Assessment income tax

  • From 1 February: Interest charges begin on the unpaid amount
  • After 30 days: 5% late payment penalty on the amount outstanding
  • After 6 months: A further 5% penalty
  • After 12 months: Another 5% penalty

VAT

  • After 15 days: 2% of the outstanding VAT
  • After 30 days: 2% on the day 15 amount plus 2% of the day 30 balance
  • After 30 days: A daily penalty rate begins to accrue until the debt is cleared

These figures are significant. On a £20,000 tax debt, the 5% penalties alone come to £1,000 at the 30-day mark, another £1,000 at six months, and another £1,000 at 12 months — before interest is factored in. Avoiding that cost is worth a phone call.

What HMRC can do if you don’t pay

If you ignore an HMRC tax debt and do not engage with them, they have significant enforcement powers. These include:

  • Debt collection agencies: HMRC passes some debts to third-party collectors
  • County Court judgements: HMRC can obtain a CCJ against you, which affects your credit record
  • Taking control of goods: HMRC can instruct bailiffs (enforcement agents) to seize and sell assets
  • Charging orders: HMRC can place a charge on your property, meaning the debt is recovered when you sell
  • Bankruptcy or liquidation: For large or persistent debts, HMRC can petition to make an individual bankrupt or wind up a company
  • Deduction from wages or benefits: HMRC can collect debts directly from your salary or tax credits

None of these outcomes are inevitable if you act early. But they are real — and HMRC does use them.

Practical steps to manage a tax debt

Beyond contacting HMRC, here are steps you can take right now to manage the situation:

1. Work out exactly what you owe

Log in to your HMRC online account, check your Self Assessment, VAT, or PAYE records, and confirm the exact amount due. Do not rely on memory or rough estimates.

2. Pay what you can, now

If you can pay part of the debt immediately, do so. A partial payment reduces the amount on which interest accrues. It also demonstrates good faith to HMRC when you call to discuss the balance.

3. Review your cash flow

Look at your business bank account. Is there money tied up in unpaid invoices? Can you chase debtors? Is there anything you can defer — such as a non-essential purchase — to free up cash? A proper cash flow forecast will show you how long the shortfall lasts and when you can realistically clear the debt.

4. Consider a short-term business loan or overdraft

In some cases, borrowing to pay a tax bill makes financial sense — particularly if the interest rate on the loan is lower than HMRC’s penalty rate. Speak to your bank about an overdraft facility or a short-term loan.

5. Set aside tax regularly going forward

Once you have resolved the current bill, set up a separate savings account for tax. Each time money comes in, transfer a percentage to cover your next tax bill. This removes the shock of a large January payment and means you will never be in this position again.

6. Use management accounts to stay on top of your tax position

If you are a limited company director or run a growing business, management accounts produced monthly or quarterly will show you your estimated tax liability throughout the year. You can plan ahead rather than react.

When to get professional help

If the debt is large, if HMRC has already started enforcement action, or if you are struggling to understand what you owe and why, get professional help quickly. An accountant can:

  • Confirm what HMRC is actually owed — sometimes there are errors on HMRC’s side
  • Negotiate a TTP arrangement on your behalf
  • Identify whether penalties can be appealed — for example, if there was a reasonable excuse for late payment
  • Help you restructure your finances to avoid the same problem next year
  • Advise on whether insolvency options such as a Company Voluntary Arrangement (CVA) might be appropriate for serious debts

Freelancers, landlords, and healthcare professionals working through self assessment often find that their tax bills are larger than anticipated because of multiple income streams — NHS income, private income, rental profits, and dividend income can all combine into a substantial liability. Getting proper advice at the start of the year, not the end, is far cheaper than dealing with a debt later.

From April 2026, Making Tax Digital for Income Tax Self Assessment starts for self-employed people and landlords with income over £50,000. Quarterly reporting will give both taxpayers and HMRC much more visibility over in-year liabilities — which should reduce the end-of-year surprise factor. Now is a good time to get your records in order.

If you are unsure about your tax position or need help setting up a payment arrangement, speak to a chartered accountant before your deadline — not after it.

Frequently asked questions

What happens if I just ignore my HMRC tax bill?

HMRC will charge interest from the due date, apply late payment penalties at 30 days, six months, and 12 months, and can escalate to enforcement action including bailiffs, charging orders on property, or — in serious cases — bankruptcy proceedings. Ignoring the bill makes every outcome worse.

Can HMRC refuse a Time to Pay arrangement?

Yes. HMRC can refuse if they believe you have the means to pay in full, if your proposed instalments are too low, or if you have a history of breaking previous payment arrangements. Being honest and realistic in your proposal improves your chances significantly.

Does a Time to Pay arrangement stop interest from building up?

No — interest continues to accrue on the outstanding balance throughout the arrangement. However, agreeing a TTP prevents further late payment penalties from being applied, which is usually the more significant saving.

Can I appeal against HMRC penalties if I couldn’t pay on time?

You can appeal if you had a reasonable excuse — for example, a serious illness, a bereavement, or a genuine HMRC system failure. Financial difficulty on its own is not usually accepted as a reasonable excuse for late filing, although it can support a case for reduced penalties. Speak to an accountant if you want to pursue an appeal.

How long can a Time to Pay arrangement last?

Most arrangements run for up to 12 months. Longer arrangements are possible but require more supporting evidence about your financial position. HMRC expects that you will clear the debt as quickly as genuinely possible, not over the longest period you can negotiate.

What if I cannot afford even the minimum HMRC payment plan?

If your financial position is severe, you may need to consider formal insolvency options such as an Individual Voluntary Arrangement (IVA) for individuals or a Company Voluntary Arrangement (CVA) for limited companies. These are significant steps and require professional advice from a licensed insolvency practitioner. An accountant can help you assess whether this is necessary and refer you to the right specialist.