Tax & admin · 22 October 2021

What are your options when you have difficulties paying HMRC?

Difficulties paying HMRC

If you have any outstanding tax bills with HMRC, but know that you will have difficulties paying any or all of the amount that is owed, you must contact HMRC to discuss the options available to you as soon as possible. The longer you wait, the more you will owe because interest is charged on any overdue payments until they are paid off.

Read on to understand the options that UK taxpayers have available to them if experiencing difficulties paying HMRC.

What tax payers need to know

When contacting HMRC to discuss paying your tax bill, if you let them know you are, or will struggle to pay the amount owed, they will be able to share the options available to you.

Payment options will depend on your specific circumstances and the amount owed, but will usually include; paying your bill in installments with a payment plan or deferring payments.

You can avoid penalties or interest payments by being open and honest with HMRC as soon as you know that you will have a problem paying your bill. By taking a proactive approach to contacting HMRC, they can put a payment plan in place before the tax is due, or by 1st April for self assessment, thus removing the need to pay interest on any late payments. .

If you miss a planned payment or are not able to pay the full amount of your tax bill, this requires your immediate action and you should contact HMRC at the earliest opportunity.

Paying your taxes

It can sometimes feel that everybody wants a piece of your hard earned cash. With the price of energy, fuel and food going up year and year, it’s hard to know where to start when it comes to budgeting. One expense that you can’t afford to neglect however is any bills owed to Her Majesty’s Revenue And Customers, more commonly referred to as HMRC.

Read on for more details on the options available to you if you know that you will struggle to pay all or some of your tax bill by the time it is due. 

When do you have to pay HMRC?

Difficulties paying HMRC

The tax that you need to pay HMRC will be specific to each individual and are based on the type of employment, investments, assets, companies, benefits, taxes, duties and levies that you use in your personal and professional life, to name just a few.

To calculate how much tax you owe HMRC, you are required to fill in a self assessment tax return form for every tax year by 31 January after the end of the tax year. This can be done online and the form you fill in outlines all of your earnings from self employment, interest, investments and other sources that aren’t taxed at source like income from an employer would be.

By the end of the form, you will see HMRCs calculation of the amount of tax you owe and when this will be due for payment.

The deadlines for HMRC to receive your funds to settle the tax you owe are:

  • 31 January – for any tax you owe for the previous tax year and your first payment on account
  • 31 July for your second payment on account

How can I pay HMRC?

HMRC wants to make it as easy as possible to get paid which is why taxpayers have multiple ways to make sure their payments are made in good time.

Whatever amount of tax you owe, you can pay HMRC by:

  • Direct debit
  • Debit or corporate credit card
  • Certificate of tax deposit

Spreading the cost of your bills to HMRC

Difficulties paying HMRC

If you cannot afford the tax bill you have received, or if you know you will likely struggle to pay your bill when it arrives, there are a number of ways that you can spread the total cover over a number of smaller installments, if certain criteria apply.

Payment plans – time to pay 

If you owe less than £30,000, have no other debts with HMRC, your previous tax returns are up-to-date and you’ve made contact less than 60 days after the payment deadline then you may be able to set up a payment plan that allows you to spread the cost of your self assessment bill by paying what you own in smaller, more management installments. Be aware however, that interest payments will still apply on top of the original amount owed if the payment is made after the tax deadline.

A payment plan usually lasts for around 12 months but there is no upper limit to the timeframe that debt can be settled. When implementing a payment plan, HMRC will assess your financial position to ensure that any agreement is affordable to you.

By reviewing your income, expenses and savings, they will expect that 50% of any remaining disposable income is put towards the tax bill owed.

Time to pay

If you have received a payment demand from HMRC outlining the action they will be taking against you to recover the tax owed, you should call the number on the letter. If you have not received a bill or letter yet but want to proactively approach HMRC regarding additional time to pay your taxes, then you should call the payment support service (PSS) on 0300 200 3835. The team may be able to negotiate a Time to Pay arrangement with HMRC on your behalf.

Planning ahead with advance budge payment plans

If you like to stick to a budget, be proactive, and plan ahead to prevent the shock of a big bill, then you may prefer to put money aside each month to help cover your next self assessment tax bill.

If you are up-to-date with your previous tax returns, you can set up an advance payment plan via your HMRC online account. If when your bill is ready, you don’t have enough cash saved to cover the bill in full, you will still need to pay the outstanding balance by the usual payment deadlines.

Taking this approach may be suitable for some people and could prevent getting into difficulties paying HMRC.

What happens if I ignore the bill?

Ignoring bills is never a good way to get on top of your debts as sadly they will never just go away. The best way to tackle difficult financial situations is to take a deep breath and contact the company or office that has issued your latest bill.

If you fail to make arrangements to pay any tax owed, then HMRC is able to and will take ‘enforcement action’ to recover the costs due to them.

Enforcement actions available to HMRC include direct recovery, distraint and Court action.

  • Taking money directly
If you have repeatedly refused to pay the tax you owe, have had a face to face visit with an advisor from HMRC, and would have at least £5000 left if your account after the debt is recovered, then HMRC can take the funds owed directly from your bank or building society account.

This process is called ‘Direct recovery of debts’ but HMRC will never take this approach without informing you of their intention first. You will always be contacted by letter outlining the process and how to make contact with them before any funds are taken.

  • Taking control of your goods – distraint