Steps to Take If You Are Struggling to Pay Your Tax

If you file a self-assessment tax return, you’re expected to pay any tax you owe for 2023/24 by midnight on January 31, 2025. You’ll also need to make your first payment on account for 2024/25 by the same deadline. But January can be a challenging month financially, leaving some people short on funds. Failing to pay on time can lead to added costs from interest and penalties—only making your financial situation worse.

The Cost of Missing the Deadline

Interest on late tax payments starts accruing immediately after the deadline. Right now, it’s charged at 2.5% above the Bank of England base rate, which was 7.25% at the time of writing. But starting in April 2025, that rate jumps to 4% above the base rate. This means that if the base rate stays the same, the interest on late taxes will climb sharply, piling on extra costs if you don’t pay on time.

Penalties also kick in if your tax remains unpaid for 30 days after the deadline. At that point, you’ll be charged 5% of the outstanding balance. If the tax still isn’t paid six months later, another 5% penalty is added. After a year, yet another 5% comes into play. These penalties can become astonishing amounts if you continue delaying payment.

Considering a Time to Pay Arrangement

Despite the scary interest and penalties, you do have options to control the situation. One practical step is to set up a Time to Pay Arrangement with HMRC. This lets you divide your tax into more manageable instalments. While you’ll still pay interest on any outstanding balance, you can avoid penalties if you stick to the agreed schedule.

Are You Eligible to Set It Up Online?

You can often set up a Time to Pay plan online if all of these conditions apply:

• You’ve submitted your latest tax return (for 2023/24)
• It’s within 60 days of the payment deadline
• You owe £30,000 or less
• You have no other payment plans or debts with HMRC

If you can’t meet these criteria—maybe you owe more than £30,000, or it’s been more than 60 days since the deadline—you should call HMRC directly. Explain your situation and see if they’ll agree to a payment plan based on your earnings, expenses, and any savings you might have.

How to Handle Payment Plans Wisely

When setting up instalments, it’s vital to be realistic about what you can pay each month. If you can only afford a small amount, it’s better to be cautious. You can always settle the debt faster if your financial situation improves.

• Missed Payments: If you skip an instalment, HMRC will likely contact you to see why. In some cases, you can renegotiate. But if you keep missing payments, they might cancel the plan and seek the full amount.
• Serious Consequences: If you still don’t pay, HMRC might assign a debt collector to pursue you or even take the money directly from your wages or bank account. If those efforts fail, HMRC could start court action.

Why Plan Ahead for Next Year

If your tax bill caught you by surprise this year, consider making a budget plan for next time. You can send regular amounts to HMRC throughout the year, and these payments will go toward any upcoming tax bills. Think of it like a dedicated savings account—only this one is run by HMRC. If you end up owing more than you’ve saved, you’ll need to pay the difference by the usual due date. But at least you won’t face the same overwhelming lump sum again.

A Word from Tax Accountant: How We Can Help

At Tax Accountant, we understand how overwhelming it can be when you’re short on funds for your tax bill. Our seasoned experts can help you review your finances, negotiate Time to Pay plans, and set up a practical budgeting system for future bills. Don’t let the fear of rising interest rates or harsh penalties stop you from taking control—reach out to Tax Accountant and let us guide you toward a powerful solution that fits your needs.