Struggling to Pay Your Tax Bill? Here’s What You Can Do

As the cost of living crisis continues, many individuals may struggle to meet their Self-assessment tax bill by the 31 January 2025 deadline. Ignoring the issue won’t make it go away; it will only worsen due to accumulating interest and penalties. Fortunately, several options are available to help you manage your tax liability.

1. Adjusting Your Tax Code (Coding Out)

If you owe £3,000 or less and meet specific criteria, HMRC can collect the amount due by adjusting your tax code for the 2025/26 tax year. This option is interest-free and a convenient way to pay in installments. To qualify:

• You must have filed your 2023/24 tax return online by 30 December 2024 or submitted a paper return before 31 October 2024.
• You must have PAYE income.

2. Setting Up a Time to Pay Arrangement

For larger amounts, you can spread your tax payments through a Time to Pay Arrangement with HMRC. Here’s what you need to know:

Eligibility:

• Your 2023/24 tax return must be filed.
• You owe £30,000 or less.
• You are within 60 days of the 31 January deadline.
• You have no other existing payment plans with HMRC.

How to Apply:

• Online: Log into your HMRC account and follow the steps to set up a payment plan.
• By Phone: Call HMRC on 0300 200 3820 and provide details of your income and expenses.

Important Notes:

• Interest will be charged on any late payments, but penalties are avoided.
• The current interest rate is 2.5% above the base rate, increasing to 4% above the base rate from April 2025.
• You can pay off the balance early to reduce interest charges.
• If you face difficulties meeting the agreed repayments, contact HMRC to renegotiate.
• Failing to pay or communicate with HMRC may lead to enforcement actions.

If you can borrow money at a lower interest rate than HMRC’s rate, it may be worth considering that option instead of setting up a Time to Pay Arrangement.

3. Using a Budget Payment Plan

Planning for future tax bills can help you avoid financial strain. A Budget Payment Plan with HMRC enables you to make regular weekly or monthly payments towards your next Self-assessment bill. Here’s how it works:

• Payments are set aside and credited against your tax liability.
• If the payments fall short, the balance must be paid by the due date.
• Overpayments can be refunded.
• Payments can be paused for up to six months if necessary.

To set up a Budget Payment Plan, ensure your tax affairs are up to date and use your online HMRC account.

4. Reviewing Payments on Account

If your tax and Class 4 NIC bill for 2023/24 exceeds £1,000 and less than 80% of your tax is deducted at source, you’ll need to make payments on account for the 2024/25 tax year. These payments are due in two installments: 31 January 2025 and 31 July 2025, each equal to 50% of your prior year’s bill.

Tips:

• If your income has decreased and you anticipate owing less tax for 2024/25, you can request to reduce your payments on account.
• Be cautious: underestimating your payments will result in interest being charged on the shortfall.

Final Thoughts

Managing your tax bill can be challenging, especially during tough economic times. By exploring options like coding out, Time to Pay Arrangements, Budget Payment Plans, or reviewing payments on account, you can ease the financial burden and avoid unnecessary penalties. Taking proactive steps is key to staying on top of your tax obligations.

For more guidance, visit: HMRC’s website.