You Cannot Pay Your Tax Bill. Here Is What Actually Happens Next

Filing and paying are separate obligations with separate penalties. If money is the problem, file anyway — it is the single cheapest decision available to you.

Illustration of options when you cannot pay an HMRC tax bill

If the bill has landed and the money is not there, the instinct is to put the whole thing off. That instinct converts a cash flow problem into a penalty problem, and it is worth understanding exactly why before January arrives.

Two obligations, two penalties

Filing your return and paying your tax are separate duties, penalised separately. You can comply with one while failing the other, and it is much cheaper to do so.

File on time and you pay nothing for filing, whatever your bank balance says. That is the single cheapest decision available in the whole process, and it costs only the effort of filing.

File first, then deal with the money

There is a second reason to file. Until the return is in, HMRC does not know what you owe — and you cannot arrange to pay an amount that has not been established. Filing is what unlocks every option that follows.

Time to Pay

HMRC will generally agree to spread a Self Assessment debt over monthly instalments. Many taxpayers can set this up online themselves without a phone call, provided the return has been filed, the amount is within the published threshold and it is arranged within the qualifying window after the due date. Larger or more complex debts are agreed by telephone, and are still routinely agreed.

Interest continues to run on what is outstanding. What the arrangement buys you is protection from the late payment penalties and, more practically, an end to the escalation.

Ring early

The difference in how these conversations go depends almost entirely on timing. Somebody who contacts HMRC before the deadline explaining that they will struggle is treated as a taxpayer managing a difficulty. Somebody contacted by HMRC six months later is a debtor. The facts may be identical; the outcomes are not.

Then fix the cause

Most of these situations trace back to the same thing: tax was never set aside because nobody knew what the figure would be until the return was done. Working out the liability during the year rather than after it turns the bill into something you have already saved for. If you want us to run that figure for you, it takes one conversation and it is the last time the January bill will be a surprise.

Getting help with this

AJH Accountants handles self assessment for clients across the UK. We deal with HMRC, tell you what you can claim, and file on time, so nothing rests on you remembering a deadline. See how the service works, ask for a fixed-fee quote, or call the office on 01204 840303.

Originally published at ajhaccountant.co.uk/blog/cannot-pay-tax-bill-time-to-pay.