You’ve filed your Self Assessment return, and the number on the screen is bigger than you expected. Much bigger. You can’t afford it. Your stomach drops.
Don’t panic. And whatever you do, don’t ignore it.
HMRC is one of the most powerful creditors in the UK — they don’t need a court order to collect debts, and ignoring them makes things dramatically worse. But they’re also surprisingly willing to work with you if you engage early. Here’s exactly what to do.
Why Ignoring Your Tax Bill Is the Worst Option
According to HMRC’s debt management guidance, if you don’t pay or contact them, they can:
- Take it from your pay — HMRC can adjust your PAYE tax code to collect the debt from your salary before you even see it. This is called “coding out” and can be done for debts up to £3,000 (or higher with your consent).
- Take it from your benefits — if you claim Universal Credit or other benefits, HMRC can deduct from your payments.
- Send debt collectors (Distraint) — HMRC can send bailiffs to seize your possessions to sell at auction. They can do this without a court order.
- File a County Court Judgment (CCJ) — this damages your credit rating and stays on your credit file for 6 years.
- Petition for bankruptcy — for large debts, HMRC can petition to make you bankrupt. This can cost you your home and assets.
- Charge escalating penalties — late payment surcharges of 5% at 30 days, 6 months, and 12 months, plus daily interest at 7.25%.
Every one of these outcomes is worse than a payment plan. The earlier you contact HMRC, the more options you have and the less it costs.
Step 1: Check If You’ve Claimed Everything You’re Entitled To
Before you contact HMRC about a payment plan, make sure your tax bill is actually correct. Many people overpay because they haven’t claimed all their allowable expenses and reliefs.
Common things people miss:
- The £1,000 trading allowance — if you have self-employment income, you can deduct £1,000 automatically (instead of actual expenses, if that’s higher). See our trading allowance guide.
- Allowable expenses — office costs, travel, equipment, software, professional fees. See our allowable expenses guide for what counts.
- Capital allowances — equipment purchases over £1,000 (laptops, tools, machinery) can be deducted.
- Home office expenses — if you work from home, you can claim a portion of utilities, internet, and rent/mortgage interest.
- MTD software costs — if you’re using accounting software for Making Tax Digital, the cost is an allowable expense. See our MTD software costs guide.
If you realise you’ve missed something, you can amend your return. You have 12 months after the filing deadline to do this. See our guide on making a mistake on your Self Assessment for the amendment process.
Step 2: Pay What You Can Now
Even if you can’t afford the full bill, pay as much as you can immediately. Here’s why:
- Interest is charged on the unpaid balance — the less you owe, the less interest accrues
- Late payment surcharges are percentage-based — 5% of a smaller amount is less than 5% of a larger amount
- It shows HMRC you’re engaging — this matters when you ask for a payment plan
For example, if you owe £6,000 and can pay £2,000 now:
- Interest accrues on £4,000 instead of £6,000
- 30-day surcharge: 5% of £4,000 = £200 instead of 5% of £6,000 = £300
- You’ve saved £100 in surcharges plus reduced your interest
You can pay online via HMRC’s payment portal by debit card, bank transfer (Faster Payments), or CHAPS.
Step 3: Set Up a Time to Pay Arrangement
A Time to Pay arrangement is HMRC’s official payment plan system. It allows you to spread your tax bill over monthly instalments. According to HMRC’s Time to Pay guidance, there are two routes:
Option A: Online payment plan (debts under £30,000)
If you owe less than £30,000 and have no other outstanding tax debts, you can set up a payment plan online through your HMRC account. No phone call needed.
Eligibility:
- You owe less than £30,000
- You’ve already filed your return
- You have no other tax debts or Time to Pay arrangements
- You can pay within 12 months (or sooner)
How to set it up:
- Log into your HMRC Online account
- Go to the payment section
- Select “Set up a payment plan”
- Choose your monthly payment amount and date
- HMRC will show you the plan — review and confirm
The online system is automatic and instant. You’ll see your monthly payments and total interest before you commit.
Option B: Phone-based arrangement (debts over £30,000 or complex cases)
If you owe £30,000 or more, or you have other tax debts, or you need longer than 12 months to pay, you’ll need to call HMRC’s Payment Support Service.
Phone number: 0300 200 3835 Hours: Monday to Friday, 8am to 6pm
When you call, have ready:
- Your UTR (Unique Taxpayer Reference)
- Your National Insurance number
- Details of your income and expenses
- How much you can afford to pay per month
- A proposed timeline for full repayment
HMRC will assess your situation and propose a plan. They’re generally reasonable if you’re honest and realistic about what you can afford. The key is to propose a plan you can actually stick to — defaulting on a Time to Pay arrangement triggers immediate enforcement action.
For the full step-by-step guide to Time to Pay, see our HMRC payment plan guide.
What Interest and Penalties Apply on a Payment Plan?
This is a common source of confusion. Here’s what happens when you’re on a Time to Pay arrangement:
| Charge | Still applies? | Details |
|---|---|---|
| Late payment interest (7.25%) | ✅ Yes | Interest accrues on the unpaid balance until it’s fully paid |
| 30-day late payment surcharge (5%) | ❌ Suspended | Once you’re on a plan, the 30-day surcharge is typically waived |
| 6-month late payment surcharge (5%) | ❌ Suspended | As long as you’re keeping up with the plan |
| 12-month late payment surcharge (5%) | ❌ Suspended | As long as you’re keeping up with the plan |
| Late filing penalties | Separate issue | If you also filed late, those penalties still apply — see our late filing guide |
So being on a payment plan saves you the 5% surcharges (which could be £750+ on a £5,000 bill) but you still pay interest. The sooner you pay off the balance, the less interest you accrue.
What If Your Circumstances Change?
If you’re on a Time to Pay arrangement and your situation changes — you lose a client, your income drops, or you have an unexpected expense — contact HMRC immediately. Don’t wait until you miss a payment.
HMRC can:
- Reduce your monthly payments — if your income has dropped
- Extend the payment period — give you more time to pay
- Pause payments temporarily — in cases of hardship
But they can only do this if you tell them before you default. If you miss a payment without contacting them, they can cancel the arrangement and move straight to enforcement action.
What If You Genuinely Can’t Pay Anything?
If your income is so low that you can’t afford any monthly payment, HMRC may agree to temporarily suspend collection. This is sometimes called “time to pay by deferral” or being placed on “hold.”
In practice, this means:
- HMRC acknowledges the debt exists
- They agree not to pursue enforcement for a period (e.g., 6–12 months)
- Interest may continue to accrue
- You’ll need to demonstrate genuine financial hardship
To request this, call the Payment Support Service on 0300 200 3835. Be prepared to provide detailed information about your income, expenses, and financial situation.
In extreme cases, HMRC may write off a debt if they determine it’s not economically viable to collect — but this is rare and usually only for very small amounts combined with severe hardship.
Common Mistakes People Make
1. Hoping it will go away
It won’t. HMRC has automated systems that flag unpaid debts. The longer you leave it, the more penalties and interest accrue, and the more likely HMRC is to use enforcement action.
2. Not filing because you can’t afford the bill
Filing and paying are separate obligations. If you don’t file, you get late filing penalties on top of late payment penalties. Always file — even if you can’t pay. See our missed deadline guide.
3. Proposing unrealistic payments
If you propose £50/month on a £10,000 debt, HMRC will reject it (that’s 200 months to pay). Be realistic — most plans are 6–12 months. If you need longer, you’ll need to demonstrate why.
4. Missing a payment without telling HMRC
This is the fastest way to trigger enforcement. If you can’t make a payment, call before the due date. HMRC is much more accommodating when you’re proactive.
5. Not checking if you’ve overpaid
Before committing to paying a large bill, check whether you’ve claimed all your allowable expenses and reliefs. Many people overpay by hundreds or thousands of pounds. See our made a mistake guide.
How to Avoid This Situation Next Year
- Save for your tax bill throughout the year — put aside 25–30% of your self-employment income into a separate savings account. This covers income tax plus National Insurance.
- File early — you can file as soon as the tax year ends on 5 April. Filing early tells you your tax bill months in advance, giving you time to save.
- Consider payments on account — if your bill is over £1,000, you’ll need to make advance payments. Budget for these in January and July. See our MTD for income tax guide for how payments work.
- Keep good records — knowing your income and expenses throughout the year means no surprises in January. See our MTD quarterly updates guide for a digital record-keeping system.
- Use accounting software — tools like FreeAgent (10% off with this link), Account OS (AI accounting for UK micro-businesses), or Coconut track your income and estimate your tax bill in real time. See our MTD software costs guide for options.
The Bottom Line
Can’t afford your tax bill? Here’s the action plan:
- Check your return — make sure you’ve claimed all expenses and reliefs
- Pay what you can — even a partial payment reduces interest and surcharges
- Set up a Time to Pay plan — online if under £30,000, by phone if over
- Stick to the plan — and contact HMRC immediately if you can’t make a payment
- Don’t ignore it — enforcement action is far worse than a payment plan
HMRC would rather you pay slowly than not at all. They have systems designed to help you spread the cost. But they only work if you engage.
For the full step-by-step guide to setting up a payment plan, see our HMRC Time to Pay arrangement guide. If you’ve also missed the filing deadline, see what to do when you miss the Self Assessment deadline. For the full breakdown of penalties and interest, see what happens when you file late.