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What Should I Do if I Can't Pay my Self Assessment Tax Bill?

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As a director, it's likely that you'll have to register for Self Assessment with HMRC. Its stressful enough compiling the information and ensuring the Self Assessment is sent on time, but what happens to your stress levels if you dont have the funds available to pay the bill?

Rule number one is dont panic, and rule number two is dont ignore the problem. There are options available to help you if you cant afford to pay.

Use Tax Reliefs

Most self-employed people do not consider using tax reliefs and allowances, but there's no reason not to use them. But what are they?

According to GOV.uk Tax relief means that you either pay less tax to take account of money youve spent on specific things, like business expenses if youre self-employed, or get tax back or get it repaid in another way, like into a personal pension. However, most business owners either do not know about them or forget that they exist.

The most well-known tax relief is the personal allowance - the amount of money you can make before paying tax. The personal allowance is currently set at £12,570, but it tends to increase a little either every year or every two years. This means you don't pay tax until you reach this threshold, although national insurance payment requirements have a lower threshold.

For more information about the National Insurance rates and allowances, check out the GOV.uk guidance.

Next, take a look at your outgoing expenses relating to the business. Is there something in your personal life that you use for the business? For example, your phone. Let's say you use your phone 50% of the time for business and the other 50% for personal use. The 50% used for the business can be put down as a business expense and then used as a relief against your tax bill. However, you will need to be able to show why the expense is allowable.

Dont forget, if youre unsure whether your expense is allowable, an accountant can often help with advice.

Offer a Payment Proposal

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If youve used the different tax reliefs and allowances and still find youre unable to pay your Self Assessment tax bill, you still shouldnt ignore it in hopes that it goes away.

HMRC will add interest and fines to the account, making the bill even higher. The fines start at £100 for payments made up to 3 months late and will rise higher with the more time that passes.

If youre unable to pay in full, HMRC does allow setting up a payment plan. However, they will ask you about your personal finances and any savings you currently hold, and they will expect you to use these savings to offset your debt as much as possible before accepting the payment plan.

While you cant set up a payment plan online, GOV.uk does have comprehensive online advice which details the process. So, if you think this is the way you need to go, check it out before making any decisions. Remember, they are legally obliged to consider the proposal, but they are not obligated to accept it.

Also, consider the reason why you can't currently afford to pay. It could be because a client is paying later than usual; if you are expecting this payment to come through soon, then explain this to HMRC, and they may allow you additional time to pay.

Once an agreement is made with HMRC, you must stick to it or contact them immediately if you cannot. Otherwise, they are within their rights to start legal proceedings against you.

Paying by Account

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Once everything is back under control with your current Self Assessment tax bill, you need to ensure the same situation doesnt happen again next year.

One way to do this is to pay on account.

Paying on account splits your tax bill into two payments - one is due January 31st, and the other is due July 31st; each of these will be 50% of your tax bill.

A word of warning, though. The payment will be based on your previous year's earnings. So, if you end up making more the following year, you may have to make an extra payment the following January when you make your next payment.

Also, if HMRC decides that you have artificially lowered your payments, they can charge you interest on the difference between what you said you would earn and what you did actually earn.

All figures and information are correct at the time of writing (March 2025). Please check relevant resources for up-to-date information.

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