Struggling to Pay Your Tax? Here Are Your Options

The deadline to pay your self-assessment tax for 2023/24 is midnight on 31 January 2025, including the first payment on account for 2024/25. January can be a financially challenging month, and if you cannot pay your tax bill, ignoring it will only worsen the situation. Unpaid tax accrues interest and penalties, making your debt to HMRC grow over time.

Understanding Interest and Penalties on Late Tax Payments

HMRC charges interest on overdue tax starting from the payment deadline until the amount is settled. Currently, the interest rate is 2.5% above the Bank of England base rate, which, at the time of writing, means a late payment rate of 7.25%. However, from April 2025, this rate will rise to 4% above the Bank of England base rate, further increasing the cost of late payments.

In addition to interest, HMRC imposes penalties for unpaid tax:

• 30 days late: 5% of the unpaid tax
• 6 months late: An additional 5%
• 12 months late: Another 5%

These charges can add up quickly, making it even more important to address your tax situation promptly.

Setting Up a Payment Plan

If you cannot pay your tax bill in full, you may be able to arrange a “Time to Pay” plan with HMRC, allowing you to pay in installments. While interest will still accrue on the unpaid balance, you will avoid late payment penalties.

You may be eligible to set up a self-assessment payment plan online if you meet the following criteria:

• Your 2023/24 tax return has been filed.
• It is within 60 days of the payment deadline.
• The amount owed is £30,000 or less.
• You have no other active payment plans or outstanding debts with HMRC.

If you cannot set up a payment plan online, contact HMRC directly. They will assess your financial situation, including your income, expenses, and savings. If you have savings, HMRC will expect you to use these to pay off your tax debt.

Managing Your Payment Plan

When arranging a payment plan, be realistic about what you can afford. If your financial situation improves, you can pay off the balance sooner. Missing payments can lead to serious consequences. HMRC may allow you to renegotiate your plan if you miss a payment, but repeated failures could result in more severe actions, including:

• Instructing a debt collector
• Deducting the amount directly from your wages or bank account
• Pursuing legal action through the courts

Planning for Future Tax Bills

To avoid future difficulties, consider setting up a budget plan with HMRC. Similar to a savings account, this allows you to make regular payments throughout the year, reducing the burden when your next tax bill is due. If your budget plan falls short, the remaining balance must be paid by the standard deadline.

By taking proactive steps and seeking support early, you can manage your tax obligations more effectively and avoid unnecessary penalties.

For more details, visit HMRC Time to Pay Guidance

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