What Happens If I Am Late Paying My Tax Bill

When your tax bill is due

If you file a Self Assessment tax return, the main payment deadlines are:

31 January: Final payment for the previous tax year, along with the first payment on account for the current year (if applicable).

31 July: Second payment on account (if applicable).

For companies, Corporation Tax is usually due nine months and one day after the end of the accounting period. VAT and PAYE payments have their own monthly or quarterly deadlines.

Missing any of these deadlines can result in interest and late payment penalties.

What happens if you miss the deadline

If you do not pay your tax bill by the due date, HMRC will start charging interest on the outstanding balance the day after the deadline.

For Self Assessment, interest begins on 1 February for unpaid tax from the previous tax year. For Corporation Tax, it starts the day after your due date.

In addition to interest, you may face late payment penalties if the tax remains unpaid after 30 days. These penalties increase over time until the balance is cleared.

Interest on late tax payments

HMRC charges daily interest on unpaid tax. The rate is linked to the Bank of England base rate plus an additional 2.5%.

This means the longer you delay payment, the more the total amount will increase.

For example:

If you owe £5,000 and the interest rate is 7%, you will be charged around £0.96 per day. Over three months, that adds up to about £86 in interest.

Interest continues to accrue until the full amount is paid. Even if you later agree to a payment plan, interest still applies during the instalment period.

Late payment penalties

HMRC applies additional penalties on top of interest if the tax remains unpaid for extended periods.

For Self Assessment:

After 30 days, a penalty of 5% of the outstanding tax is added.

After 6 months, another 5% penalty is applied.

After 12 months, a further 5% penalty is charged.

These penalties can be substantial if the debt is not resolved quickly.

For example, if you owe £10,000 and fail to pay for a year, you could face £1,500 in penalties plus daily interest.

What if you cannot pay your tax bill

If you know you cannot pay your tax bill on time, it is important to contact HMRC before the payment deadline. HMRC may allow you to set up a Time to Pay arrangement, which lets you pay your tax in instalments.

How Time to Pay works

A Time to Pay arrangement is an agreement between you and HMRC to spread your tax payments over a period that suits your financial situation.

To apply:

Call HMRC or apply online via your tax account.

Provide details about your income, expenses, and assets.

Agree to make regular monthly payments.

If you stick to the arrangement, HMRC will not charge late payment penalties. However, interest will still accrue on the outstanding balance until it is paid in full.

Time to Pay is available for most types of tax, including Self Assessment, VAT, PAYE, and Corporation Tax.

How late payments affect your credit and business

HMRC does not report debts to credit reference agencies, so a late tax payment will not directly affect your credit score.

However, if you consistently fail to pay or ignore correspondence, HMRC can take stronger action, such as:

Issuing a County Court Judgment (CCJ).

Instructing debt collection agencies.

Seizing assets or funds directly from your bank account.

Starting bankruptcy or winding-up proceedings for businesses.

These actions can damage your financial standing and reputation. It is always better to communicate with HMRC early to prevent escalation.

How to avoid late payment problems

The best way to avoid late payment penalties is to plan ahead and stay organised.

Set reminders: Mark tax deadlines in your calendar.

Save regularly: Put aside a portion of income for tax throughout the year.

File early: Submitting your tax return early gives you more time to plan your payment.

Check your calculations: Errors can delay processing and cause unexpected bills.

Use an accountant: A professional can help estimate your liability and manage payments efficiently.

If your income fluctuates, review your tax payments regularly to ensure you are setting aside enough.

What happens if HMRC owes you money

If you have overpaid tax or made a mistake that results in a credit, HMRC will issue a refund once they have reviewed your return. You can track refunds through your HMRC Personal Tax Account.

If you have other outstanding tax debts, HMRC may offset your refund against those before paying the balance to you.

How an accountant can help if you are late

If you are behind on your tax payments or worried about penalties, an accountant can help by:

Reviewing your tax position and confirming the amount owed.

Contacting HMRC on your behalf to negotiate a Time to Pay plan.

Preparing accurate financial records for HMRC to assess your ability to pay.

Advising on future budgeting and cash flow to prevent recurrence.

Accountants experienced in dealing with HMRC can often negotiate better terms and help you avoid unnecessary penalties.

Final thoughts

Being late paying your tax bill can lead to interest, penalties, and stress, but HMRC is usually willing to work with taxpayers who act quickly. The most important step is to communicate early, understand your options, and make realistic payment arrangements.

By keeping accurate records, planning ahead, and seeking advice from an accountant when needed, you can avoid escalating debt and ensure your tax obligations are managed efficiently.