Cannot Pay Your Tax Bill Guide UK (HMRC Time to Pay 2026)

What Happens If You Miss the Tax Deadline

Missing the 31 January Self Assessment deadline (or the relevant deadline for VAT, Corporation Tax, or other taxes) triggers immediate consequences. For Self Assessment, a £100 fixed penalty is charged automatically even if you have no tax to pay. After 3 months, additional penalties of £10 per day apply for up to 90 days (£900 max). After 6 months, a further penalty of 5% of the tax due or £300 (whichever is greater) is added, and again after 12 months. Interest accrues on unpaid tax from the deadline at the Bank of England base rate plus 2.5% (currently 7.25% for 2026). For VAT, a surcharge system applies based on how many times you have been late in the past 12 months — the penalty percentage increases with each default. Corporation Tax late filing incurs an initial penalty of £100 (or £200 if repeated within 12 months), escalating to £1,000 for persistent lateness. HMRC may also issue distraint notices (seizure of assets) or take county court proceedings for persistent non-payment. The key message: contact HMRC before the deadline if you know you cannot pay. Early contact gives you access to Time to Pay arrangements and may reduce penalty exposure. Ignoring the problem only makes it worse — penalties compound, interest mounts, and enforcement action becomes more likely. If you have already missed the deadline, contact HMRC immediately to limit the damage. See our Benefits Overpayment guide → for similar rules on benefit debts.

HMRC Time to Pay Arrangement (How It Works)

A Time to Pay (TTP) arrangement is an instalment plan that lets you spread your tax liability over a period — usually up to 12 months for Self Assessment debts under £30,000. TTP is available for most taxes including Income Tax, Corporation Tax, VAT, and National Insurance contributions. The arrangement is legally binding: you agree to pay a set amount each month, and as long as you stick to the plan, HMRC will not take enforcement action. You must file your tax return before you can set up TTP — you cannot agree a payment plan for an estimated bill. Interest continues to accrue on the outstanding balance at the late payment rate (currently 7.25%), but the arrangement prevents late payment penalties from escalating. For Self Assessment debts under £30,000, you can set up TTP online through your HMRC account without speaking to anyone. For debts over £30,000, you must call HMRC's Payment Support Service on 0300 200 3835. HMRC will assess your income, outgoings, and other debts to determine a realistic repayment amount. They are generally flexible if you can demonstrate genuine financial difficulty. You can propose a payment amount and duration — HMRC rarely refuses reasonable proposals, especially if you have a good compliance history. TTP is also available for VAT (up to 12 months) and Corporation Tax (up to 12 months, sometimes longer for larger debts). Once the arrangement is in place, you must keep up with your current tax obligations — missing a future deadline can invalidate the TTP agreement and trigger the full penalty regime.

Setting Up a Payment Plan Online

For Self Assessment debts of £30,000 or less, the quickest and most convenient option is to set up a Time to Pay arrangement online through your HMRC government gateway account. Log in at gov.uk, navigate to your Self Assessment account, and look for the "Set up a payment plan" option. You will need to: have filed your tax return for the relevant year, owe £30,000 or less across all HMRC debts, be within 60 days of the payment deadline (or already past it), and not have another TTP arrangement in place. The online system will ask you how much you can afford to pay each month. It calculates the instalments automatically based on the total owed and the interest that will accrue. You can choose a payment date each month (usually the 28th or a date of your choice). The plan typically runs for up to 12 months but can be shorter if you prefer. Once agreed, you will receive a confirmation with the schedule of payments. Set up a direct debit to ensure payments are made on time — missing a payment can cancel the plan and trigger penalties. If your circumstances change and you can no longer afford the agreed amount, contact HMRC immediately to renegotiate. The online system is available 24/7 and takes about 10–15 minutes. For debts over £30,000, you cannot use the online system — you must call HMRC's Payment Support Service. HMRC may ask for financial information (income, expenses, assets) to assess your ability to pay before agreeing to a plan for larger debts.

Interest and Penalties for Late Payment

Late payment of tax triggers two types of charge: interest and penalties. Interest is charged from the due date (31 January for Self Assessment) until the date of payment, at the Bank of England base rate plus 2.5%. As of 2026, the late payment interest rate is approximately 7.25% per annum. This interest applies even if you have a Time to Pay arrangement — it accrues on the outstanding balance daily. Late payment penalties are separate from interest. For Self Assessment, a 5% late payment penalty is charged on any tax unpaid after 30 days. A further 5% is charged after 6 months, and another 5% after 12 months — totalling a maximum of 15%. For VAT, the penalty regime depends on your default history: a first late payment incurs a 2% surcharge, rising to 5%, 10%, and 15% for subsequent defaults within 12 months. For Corporation Tax, interest is charged from the due date (9 months and 1 day after the end of the accounting period) and late payment penalties are 5% of the unpaid tax (with additional 5% charges after 6 and 12 months). Penalty mitigation: if you have a reasonable excuse (serious illness, bereavement, computer failure beyond your control), you can appeal penalties. HMRC also offers a "one-off" concession in certain circumstances. The most effective way to minimise penalties is to contact HMRC before the deadline and agree a Time to Pay arrangement — this stops the penalty clock from running on late payment penalties (though interest still applies). If penalties have already been charged and you subsequently set up TTP, you can ask HMRC to reduce or remove the penalties as a gesture of goodwill, especially if this is your first default.

Budget Payment Plan (Paying Tax in Advance)

If you struggle with the lump-sum nature of tax bills, HMRC's Budget Payment Plan lets you spread your next Self Assessment tax bill across the year in weekly or monthly instalments. This is not a Time to Pay arrangement for an existing debt — it is a proactive savings plan for your next tax bill. You set up a direct debit from your bank account to HMRC, and the payments are held on your tax account. Payments can start from April and stop in January, aligning with the tax year. There is no minimum payment amount — you can pay as little as £1 per week. However, you are responsible for ensuring that the total paid by 31 January covers your estimated tax liability. If you overpay, HMRC will refund the difference after your return is filed. If you underpay, you will need to pay the shortfall by 31 January or face interest and penalties. The Budget Payment Plan is particularly useful for self-employed people, landlords, and anyone with variable income who knows they will have a tax bill but wants to avoid the January shock. You can set it up through your HMRC online account. It is free to use — no fees, no interest (unlike TTP where interest accrues). You can adjust, pause, or cancel the payments at any time. Combining a Budget Payment Plan with an accurate estimate of your tax bill (using accounting software or a tax calculator) is one of the simplest ways to manage cash flow and avoid late payment penalties. For help estimating your tax, see our Self Assessment guide →.

What to Do If HMRC Refuses a Payment Plan

HMRC generally agrees to Time to Pay arrangements if you meet the basic criteria, but there are situations where they may refuse or vary the terms. Common reasons for refusal include: you have not filed your tax returns (TTP is not available for estimated liabilities), you have a history of non-compliance or broken previous TTP agreements, the debt is very large (over £30,000) and you cannot demonstrate a realistic ability to repay within 12 months, or you have other debts that HMRC considers a higher priority. If HMRC refuses, you have several options. Negotiate alternative terms: propose a longer repayment period (though HMRC typically limits TTP to 12 months for Self Assessment, they may agree to longer for larger tax debts) or offer a different monthly amount. Provide evidence: submit a detailed income and expenditure statement showing why you cannot pay the full amount now — HMRC may reconsider if you clearly demonstrate financial hardship. Speak to a tax adviser or debt charity: organisations like StepChange, National Debtline, and Citizens Advice can help you negotiate with HMRC and may suggest alternative strategies such as an Individual Voluntary Arrangement (IVA) or bankruptcy in extreme cases. Appeal the decision: if HMRC's refusal is unreasonable, you can complain through HMRC's complaints process and ultimately to the Adjudicator's Office (see our Complain about HMRC guide →). Pay what you can: making a partial payment demonstrates willingness and reduces your exposure to penalties and interest. Even if HMRC refuses a formal TTP, paying something is better than paying nothing. If enforcement action is threatened (distraint, court proceedings), seek professional advice immediately — a County Court Judgment (CCJ) or bankruptcy can have long-term consequences for your credit file and financial life.

FAQs

Can I set up a Time to Pay arrangement online?

Yes, for Self Assessment debts under £30,000 you can set up TTP online through your HMRC government gateway account without speaking to anyone. You must have filed your return first. The process takes about 10–15 minutes.

Does a Time to Pay arrangement stop penalties?

It prevents further late payment penalties from accruing, but interest continues to charge on the outstanding balance at the late payment rate (currently 7.25%). Late filing penalties (if your return was also late) are not affected by a TTP arrangement.

What if I miss a payment under a Time to Pay plan?

Contact HMRC immediately. If you miss a payment, the entire outstanding balance becomes due and late payment penalties may be reinstated. HMRC may agree to revise the plan if you contact them before the missed payment date.

Can I get a Time to Pay arrangement for VAT or Corporation Tax?

Yes, TTP is available for most taxes including VAT (up to 12 months), Corporation Tax (up to 12 months), PAYE, and National Insurance. The process and criteria are similar to Self Assessment TTP. Contact HMRC's Payment Support Service on 0300 200 3835.

Will a Time to Pay arrangement affect my credit score?

A TTP arrangement itself is not reported to credit reference agencies. However, if HMRC takes court action (such as a CCJ) because you broke the agreement, that will appear on your credit file. Stick to the plan and your credit score is unaffected.