Action you can take if you are struggling to pay your tax

Tax due under Self Assessment for 2023/24 should have been paid in full by midnight on 31 January 2025, along with the first payment on account for 2024/25. We understand that January is a particularly challenging time for many financially. It's not uncommon to find yourself struggling to gather the necessary funds to meet your tax obligations. You're not alone. In fact, recent data shows that many individuals and small businesses across the UK are facing similar difficulties. Reports from organisations like BDO highlight the significant impact of cash flow challenges and inflationary pressures, especially on small businesses. Furthermore, as reported by HMRC, the rising tax gap underscores the growing struggle people face in managing their tax liabilities. The TaxPayers’ Alliance has also brought to light the strain caused by frozen tax thresholds, which have resulted in more people paying income tax, often stretching already tight budgets.

If you cannot pay all the taxes you owe, please know that ignoring the problem will not make it go away. In fact, it will unfortunately worsen as interest and penalties accumulate, increasing the amount you'll ultimately need to pay to HMRC.

As far as interest and penalties are concerned, interest is charged from the due date to the date of payment. Currently, interest on overdue tax is charged at 2.5% above the Bank of England base rate. From April 2025, interest on overdue tax will be charged at a rate of 4% above the Bank of England base rate. It is easy to see how this can soon mount up. If tax remains due 30 days after the deadline, a penalty of 5% of the unpaid tax is charged. Further penalties of 5% of the unpaid tax are charged six months after the due date and 12 months after the due date.

Payment plans

However, some steps can be taken to take control of the situation and to clear the debt. One option is to set up a Time to Pay arrangement to pay the tax in instalments. It may be possible to do this online. Although interest will still be charged where payment is made in instalments, there will be no penalties to pay.

A taxpayer should be able to set up a Self Assessment payment plan online if all of the following apply:

• the latest tax return (i.e. that for 2023/24) has been filed;

• the date is within 60 days of the payment deadline;

• the amount owed is £30,000 or less; and

• the taxpayer does not have any other payment plans or debts with HMRC.

Taxpayers who are unable to set up a payment plan online should contact HMRC to see if it is possible to agree to pay what they owe in instalments. HMRC will take into account their income and expenses, and also whether they have any savings. Taxpayers with savings will be expected to use these to pay any tax that they owe.

When setting up a plan, it is important to be realistic about the payments and ensure that these are manageable – the taxpayer can always clear the debt earlier if they are able to do so. If a payment is missed, HMRC will usually contact the taxpayer to find out why. They may let the taxpayer renegotiate the plan. However, if payments are regularly missed, HMRC may start action to collect the debt in full. This may involve instructing a debt collector or collecting the tax direct from the taxpayer’s wages or bank or building society account. If the tax remains unpaid, HMRC may instigate court action.

Plan ahead

Consider setting up a budget plan to ensure that money is set aside to meet future tax bills. This plan works a bit like a savings account: The taxpayer makes regular payments to HMRC, which are set against future tax bills. If the taxpayer has not put enough aside to meet the bill, the balance must be paid by the normal due date.