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# I Can't Pay My Tax Bill, What to Do
You're not the first tradesperson to get hit with a tax bill you can't clear. The key is to get in front of it, not bury your head.
1. First rule: don't ignore it
If you don't pay and don't talk to HMRC, everything gets more expensive.
Interest starts the day after the deadline and runs until it's paid. HMRC's interest rate is Bank of England base rate + 2.5%: currently around 6.5-7% a year.
Late payment penalties on a self-assessment bill stack up fast:
| When | Penalty |
|---|---|
| 30 days late | 5% of the unpaid tax |
| 6 months late | Another 5% |
| 12 months late | Another 5% |
So a £5,000 bill left fully unpaid for a year picks up £750 in penalties (15%) plus roughly £325-350 in interest. That's over £1,000 added to what you already owe, for doing nothing.
Doing nothing is the most expensive option.
2. Time to Pay (TTP): spreading the bill
HMRC know self-employed people have wobbly cashflow. They have a system called Time to Pay.
How it works
- You agree a payment plan to pay your tax in monthly instalments instead of one hit
- Interest still runs on the outstanding balance · but extra late payment penalties are usually paused while you've got an agreed plan and you're sticking to it
- Plans typically run 6-12 months, sometimes longer if the numbers justify it
How to apply
If the bill is under £30,000 and you've filed your return on time:
You can often set up a TTP plan online through your Government Gateway · no phone call needed. Go to gov.uk and search "set up a Self Assessment payment plan."
If the debt is over £30,000, or more complex, or you haven't filed yet:
Call HMRC's Payment Support Service on 0300 200 3835: ideally before the payment deadline, not after.
What HMRC will ask
- How much you owe and which tax year
- What you can realistically afford each month
- Your income, regular outgoings, other debts, and any assets or savings
Important
- Your offer has to be realistic · not "£10/month forever" on a £5,000 bill. They'll push back.
- If you agree a plan and then miss payments without calling them, they can cancel the plan and go straight to enforcement
- Always call them before you miss a payment · they're far more flexible if you're up front than if they have to chase you
3. What if you don't pay and don't set up TTP?
If you ignore it, HMRC's enforcement process kicks in:
Stage 1: Penalties and interest
The 5%/5%/5% penalty structure above, plus daily interest. A £5,000 bill becomes £6,000+ within a year with no contact from you.
Stage 2: Debt collection
HMRC can pass the debt to enforcement agents (bailiffs) · either their own or third-party firms.
Stage 3: What enforcement agents can do
- Visit your home or business premises (they must give 7 days' written notice for most debts)
- List your belongings in a "controlled goods agreement" · they note what they could take but give you time to pay first
- Take and sell goods if you still don't pay after a controlled goods agreement
What they CANNOT take
Under the Taking Control of Goods Regulations 2013 (Regulation 4):
- Tools, books, vehicles and other items of equipment that you personally need for your trade, profession, or vocation: up to an aggregate value of £1,350
- Basic household necessities · fridge, cooker, washing machine, beds, bedding, dining table and chairs, clothing for you and your family
- Items that belong to someone else (not yours)
The van question
This is the grey area everyone asks about:
- If the van is in your name and clearly essential for your work, enforcement agents may have difficulty justifying taking it · especially if it's your only vehicle and worth less than £1,350
- But if it's a high-value vehicle (most work vans are worth well over £1,350), it's not automatically protected
- They may pressure you to refinance, sell, or downgrade
- If the van is on finance (HP or PCP), it's technically the finance company's asset until paid off · the bailiff can't take what you don't own outright
The point: you don't want to get to the bailiff stage. A Time to Pay plan sorted early costs you far less stress and money.
4. Payments on account, and reducing them when income drops
If your self-assessment tax bill is over £1,000 and less than 80% of your tax is collected through PAYE, HMRC usually requires payments on account towards next year's bill.
How it works
- 31 January: pay your main bill PLUS the first payment on account (50% of last year's total bill)
- 31 July: second payment on account (another 50%)
- Following 31 January: any balancing payment if you owe more, or a refund if you overpaid
If your income has dropped
If you've had fewer jobs, been off sick, or the market's quieter, your payments on account may be too high because they're based on last year's (better) tax bill.
You can apply to reduce them:
- Use the HMRC online service through your Gateway, or
- Submit form SA303 (you can do this online or by post)
- Give your best estimate of this year's income and tax
Warning: if you reduce payments on account and your final bill turns out higher than expected, HMRC will charge interest on the underpayment from when the payment was originally due. So reduce them sensibly, not to zero unless you're genuinely expecting very low or no profit.
5. Budgeting for tax going forward: the 30% rule
You get hit hardest the first time because you're not used to putting money aside. Here's how to stop it happening again.
The simple rule: every time you get paid, put 25-30% of the profit into a separate "tax pot" bank account. Don't touch it. That's HMRC's money, not yours.
Most high street banks let you open a second current account or savings account for free. Some people use Monzo, Starling, or Chase pots to ring-fence tax money automatically.
For CIS workers
Remember that contractors are already deducting 20% or 30% CIS from your labour payments, that goes towards your tax bill.
But you may still need to set money aside for:
- Tax on profit above what CIS covers (materials margins, cash work, other income)
- Class 2 NI (£3.45/week through self-assessment)
- Class 4 NI (6% on profits between £12,570 and £50,270, plus 2% above that for 2025/26)
- Any other income with no tax deducted (rental income, side work, interest)
Even CIS workers who think "it's already been taken off" often owe £500-2,000 extra at self-assessment because of NI contributions and non-CIS income.
6. If you genuinely cannot afford it even with a payment plan
If your numbers are so tight you can't realistically make a Time to Pay plan work, don't dig a deeper hole with credit cards and loans just to pay HMRC.
Get free debt advice first
StepChange · free, confidential debt charity 0800 138 1111 (Mon-Fri 8am-8pm, Sat 9am-2pm) | stepchange.org
Business Debtline (via Money Advice Trust), specifically for self-employed and small business owners businessdebtline.org | Covers both personal and business debts including tax arrears
Citizens Advice 0800 144 8848 | citizensadvice.org.uk
What they can help with
- Build a realistic budget showing what you can actually afford
- Work through options: informal arrangements with HMRC, Individual Voluntary Arrangements (IVA), Debt Relief Orders (DRO), or in worst cases bankruptcy
- Work out where HMRC sits alongside your other creditors (HMRC is a priority debt · see our guide on priority debts)
- Write to creditors on your behalf
If it comes to formal insolvency
If you end up in an IVA or bankruptcy:
- HMRC income tax and NI debts are treated as unsecured creditors · they rank alongside credit cards and personal loans, not above them
- Some or all of the debt may be written off as part of the insolvency process
- But insolvency has serious consequences: credit rating, ability to be a company director, and it stays on record for years
This is a last resort, not a first response. But knowing the option exists can take the panic down a notch.
7. How to talk to HMRC without it blowing up
When you call the Payment Support Service (0300 200 3835):
Have ready:
- Your Unique Taxpayer Reference (UTR)
- Your most recent tax return figures
- A rough income and outgoings breakdown (what comes in each month, what goes out on essentials)
Be honest. Don't promise £500/month if you can only manage £200. They'll work with realistic numbers. They won't work with fantasy.
If things change (job cancelled, illness, van breakdown), call them back before you miss a payment and ask to adjust the plan. They deal with thousands of people in your position every day. Being up front and organised gets you a lot further than waiting for threatening letters.
You can also authorise your accountant to deal with HMRC on your behalf. If the thought of calling HMRC makes you feel sick, let your accountant make the call. That's part of what you pay them for.
What to do next
- If you've got a bill you can't pay: call HMRC Payment Support on 0300 200 3835 before the deadline · or set up a plan online if under £30,000
- If you've already missed the deadline: call them today. The later you leave it, the more penalties stack up
- If you can't afford any plan at all: call StepChange (0800 138 1111) or Business Debtline before doing anything else
- Set up the 30% tax pot today · separate account, automatic transfer every time you get paid
- Check if your payments on account need reducing · form SA303 online if your income has dropped
Sources
- Taxes Management Act 1970, s.59C (late payment penalties) · legislation.gov.uk/ukpga/1970/9
- Finance Act 2009, Schedule 56 (penalty for late payment of tax) · legislation.gov.uk/ukpga/2009/10/schedule/56
- Taking Control of Goods Regulations 2013, Regulation 4 (exempt goods including tools of trade) · legislation.gov.uk/uksi/2013/1894/regulation/4
- HMRC, If you cannot pay your tax bill on time · gov.uk/difficulties-paying-hmrc
- HMRC, Set up a Self Assessment payment plan · gov.uk/pay-self-assessment-tax-bill/pay-in-instalments
- HMRC, Reduce your payments on account · gov.uk/understand-self-assessment-bill/payments-on-account
- HMRC interest rates · gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments
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