So you’ve got your tax bill for the year and realise you can’t pay it (or at least, not all in one go).That bill can be for your personal ‘self assessment’ tax, or other business taxes like corporation tax, VAT or payroll ‘PAYE’ taxes.
It’s more common than you think for an owner to struggle to pay on time. So, don’t panic. You are not alone. HMRC recently reported around 40% of small businesses didn’t pay their annual company tax bills on time.
If you can’t pay, the good news is that you have options. But you do need to take action, and quickly. We’ll look at the important things you need to know about not paying on time (or at all):
- What it will cost you in interest and fines
- How HMRC will try to force you to pay the money
- What they can take from you if you don’t pay
- How they can access your bank account
- Who to call for advice and help
Interesting numbers
Let’s start with the financial implications of not paying tax by the deadline.
• Interest
If you don’t pay on time, HM Revenue & Customs will start sending you letters and charge you interest on the amount overdue. At time of writing (Jan 2026) the interest rate is currently 7.75%, although the exact rate depends on the Bank of England’s base rate. So HMRC do change it on occasion.
Interest applies to both ‘Balancing Payments’ and ‘Payment on Accounts’.
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- ‘Balancing Payment’ is the amount due on the tax year on question (for example, 2024-2025).
- ‘Payment on Account’ is tax ‘in advance’ for the next year (for example, 2025-2026).
From the start of 2026, 7.75% interest is charged on the amount for the period overdue.
Here’s an example:
Maggie is due to pay £5000 on 31st Jan 2026.
She pays it on 28 Feb 2025, 28 days late.
Her interest charge would be as follows:
£5000 x 7.75% = £387.50 (per year).
Divide by 365 days,
then
Multiply by days late (28)
365/28 = almost £30 of interest.
That’s a smidgen over £1 of interest every day, so it add up quickly.
• Penalties
Penalties only apply to ‘Balancing Payments’, which is the tax due on the year in question.
If you carry on ignoring the letters about Balancing Payments, you will also get charged late payment penalties. Penalties are applied in 5% blocks. So for your personal self-assessment tax bill you will get charged 5% of the amount owed in a penalty at the 30 day, 6 month and 12 month mark, as follows:
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- You will initially be charged 5% on amounts not paid after 30 days.
- An additional 5% at the 6-month point on the amount outstanding, even if you pay off some of it.
- An additional 5% at the 12-month stage on the amount outstanding at this point, again even if you pay off some of it.
There is a tool you can use on the HMRC website to estimate your penalties (if you want to work it out!).
HMRC on your doorstep
If you still carry on ignoring the letters, you might start to see the enforcement action ramping up. Normally you begin to receive calls or letters from a debt recovery agency. Once the debt collection letters and calls don’t get anywhere, then you often get to the point a HMRC officer actually turns up on your doorstep for a conversation.
In our experience, the HMRC officers are normally very reasonable people to deal with and are keen to get a mutual agreement on how to pay this debt with you.
If they can’t get hold of you, or can’t come to an agreement with you on paying, HMRC have powers to seize goods, take possession of some of your assets, take you to court, and even take money straight from your bank account where the debt is over £1000.
If that sound scary, it is, but if you just engage with HMRC, it’s likely you’ll never experience any of these extreme powers.
Engaging with HMRC
Start with a telephone call. The HMRC advice would be to call them as soon as possible once you are aware you cannot pay.
However, as you can see from the penalty/interest information above, if you are only going to be a little late (say under 30 days), you may decide it’s not worth the call waiting times to get in touch with them.
From experience over the years, HMRC’s recovery of debt can be anywhere from non-existent to a collection officer on your doorstep 4 weeks later. There doesn’t appear to be any pattern to this. So, if you think you are going to be any more than ‘a little’ late, it is definitely worth the call.
Payment plans with HMRC
You can arrange a payment plan by phone or online:
By phone: HMRC have a Business Payment Support Service that can help you, and you don’t have to be a business to call. Normally this will involve some questions, questions followed by setting up a payment plan via instalments, known as a ‘Time to Pay Arrangement’. Under this Arrangement, you will still pay interest on outstanding amounts, but will not be charged additional penalties if you stick to the arrangement.
Call them on 0300 200 3835, open Monday to Friday 8am-8pm and Saturday 8am-4pm. You’ll find all the details here.
Online: You can also set up a payment plan online. This applies to your Self-Assessment personal tax bills. If yours is under £30,000, in most cases you can set up a payment plan online via your Personal Tax Account.
- First go to https://www.gov.uk/difficulties-paying-hmrc
- Once you start the process, it will ask you if there is anything you can pay now. Anything you can afford now will reduce your payment plan, so it’s worth thinking about it.
- You then enter details around your monthly income and expenses. The system will give you a sum it thinks you (hopefully) can afford to pay.
- After this you can select a timeframe from the suggestions offered. Technically there is no limit to how long a payment plan can last, but we regularly see 6-18 months offered online.
- You then enter some bank details and set up a direct debit. In most cases it’s pretty straightforward and doesn’t take that long.
- If you want to see this process in action, see HMRCs own YouTube video showing the online process in detail.
Advice on debt
For wider advice on debt, there are some great free resources out there. You can also seek help and advice from debt charities such as www.stepchange.org and your local Citizens Advice Bureau. Or do a quick google for ‘list of debt charities’ which will bring you up a list.
Plan ahead – and get some professional help
Forward planning can help you manage your tax affairs better, and ensure that when the bill arrives, you’ll at least know what it will be. If you’re not getting that level of support from your current accountant, or don’t have an accountant yet, just get in touch.
About the author:
Dan Heelan is the Business Services Director of Heelan Associates, an accounting firm that helps small business owners across the UK start, survive, and grow.
With a background as a small business owner himself, he discovered his passion for accounting and tax early in his journey and now focuses on empowering fellow entrepreneurs with the knowledge and tools to navigate the financial side of running a business.
You can see and hear Dan in action in his regular: