What if you can’t pay your Self Assessment tax bill?

In an ideal world, you put away enough to cover the tax for each pound of income that you earn. Then, when it comes time to pay your tax bill, you’re not filled with panic, you…

5 Minute Read

Last Updated: 12th October 2022

In an ideal world, you put away enough to cover the tax for each pound of income that you earn. Then, when it comes time to pay your tax bill, you’re not filled with panic, you simply transfer the money you owe to HMRC. Job done.

But what if you don’t operate in an ideal world, you’re not organised and you don’t put any money aside to cover your tax bill? Or you put enough aside, but you dip into it to pay for other things, which could include your wages if work drops off, and you don’t have enough cash to pay your Self Assessment tax bill?

Act quickly

Need to know! If you fail to pay your tax bill by the deadline, you’ll be charged interest in addition to the amount of unpaid tax you owe.

If you don’t have enough cash to pay your Self Assessment tax bill when required, you need to act quickly. Contact HM Revenue and Customs (HMRC) as soon as possible if you’ve missed a tax-payment deadline or you know that you won’t be able to pay your tax bill on time.

HMRC is there to support you and help you to find a solution, which could be paying off the amount of tax you owe in instalments, which is called a “Time to Pay” arrangement.

Need to know! When you owe unpaid tax to HMRC, your credit score won’t be affected, because the money you owe is not the result of unpaid credit.

Time to Pay

You may be able to set up a Self Assessment payment plan (Time to Pay) using your Government Gateway account if:

  • you’ve filed your latest tax return
  • your tax bill is less than £30,000
  • you contact HMRC within 60 days of the payment deadline and
  • you plan to pay your debt off within 12 months or sooner.

You set up a Time to Pay arrangement via your Government Gateway account. If you owe more than £30,000 or need more time to pay, HMRC recommends that you telephone the Self Assessment helpline (0300 200 3822 Monday to Friday, 8am to 6pm, excluding public holidays).

When setting up a Time to Pay arrangement you’ll need:

  • your UTR (Unique Tax Reference) number
  • your VAT registration number (if you’re a VAT-registered business)
  • your bank account details
  • Information about any previous tax payments you’ve missed.

HMRC will ask you how much you can afford to repay each month, whether you can pay in full, if you owe any other tax, how much you earn, how much you personally spend each month and whether you have any savings or investments. If you have savings or assets, HMRC will expect you to use/sell these to reduce your tax debt as much as you can.

Did you know?

If you’re up to date with your previous Self Assessment payments, you can set up a Budget Payment Plan to make regular monthly or weekly payments towards your next tax bill. You can do so by setting up a Direct Debit via your HMRC online account.

How HMRC works out your Time to Pay repayments

Your repayments will be based on how much cash you have left after paying your monthly living costs and “fixed outgoings” (eg subscriptions). Normally, you have to pay about half of this amount each month off your tax bill. If you receive a pension it will be counted as income, but the total amount in your pension pot will not count as savings.

You can also agree to pay more if you want, which will mean you’ll pay less overall, because interest is added to your bill each month.

The length of your Time to Pay arrangement will be determined by how much you owe and how much you can afford to pay each month. Should your circumstances change, contact HMRC straight away, because the length of your Time to Pay arrangement can be increased or decreased at HMRC’s discretion.

Need to know! HMRC can use its debt enforcement powers to collect outstanding tax if you do not explain how you will pay the unpaid tax that you owe.

What action can HMRC take against you?

  • If a payment plan cannot be agreed, HMRC will ask you to pay the unpaid tax in full and it can collect unpaid tax directly if you refuse to pay.
  • HMRC can instruct a debt-collection agency to retrieve your unpaid tax or collect it directly from your wages or any monthly pension payments if relevant.
  • In England, Wales and Northern Ireland, HMRC can seize and sell your assets and has the power to take money directly from your bank account or building society savings.
  • HMRC can also take you to court, make you bankrupt and close down your business if you owe business tax.

Can HMRC take your house?

When seeking to recover unpaid tax, HMRC or its agent will never take possessions that are essential for your security and wellbeing. However, HMRC may decide to recover a debt via County Court proceedings, if you have assets to cover the debt but refuse to pay it.

HMRC may go for a “charging order,” which is an order of the court which prevents a debtor from “selling specified assets without first paying what the court has ordered they must pay out of any proceeds”. Land or property are most common assets to which charging orders are subject.

Charging orders give HMRC the power to recover debts from the sale of a property, either when the person who owns the property sells it or through a court action known as an “order for sale”, when the owner can be forced to sell the property.

In conclusion

If you can put away enough money each month to cover your tax bill, it can save you a lot of stress and hardship. About 25% of your gross income (ie total earnings/sales) should easily do it). If you get into difficulties and can’t pay your tax bill, don’t panic, but you really need to act quickly and work with HMRC to find a solution.

Can GoSimpleTax help?

GoSimpleTax can enable you to keep track of how much tax you owe, so that you can better budget for paying your tax bill. And GoSimpleTax could suggest additional expenses that you can claim to reduce your tax bill. GoSimpleTax comes with support from a highly experienced team of tax experts who are there to make filling and filing your Self Assessment tax return much easier.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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