What happens if I can’t pay my tax bill?

If you work for yourself, paying your tax bill is a priority. But if you want to know what happens if you can’t pay your tax bill, read on.

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If you work for yourself, you will need to pay your own taxes. But now more than ever, many of us are struggling to make ends meet. So if you want to know what happens if you can’t pay your tax bill, read on.

What happens if I don’t pay on time?

If you don’t pay your tax by the deadline on 31 January 2021, HMRC will charge you in two separate ways:

1. Late penalty

HMRC will charge a late penalty, the size of which will depend on how late you submit your tax return. The penalty will increase as follows:

  • 30 days after the due date, the charge is 5% of the outstanding balance.
  • Six months after the due date, the charge is a further 5% of the outstanding balance.
  • 12 months after the due date, the charge is a further 5% of the outstanding balance.

2. Interest

You will be charged interest for the period of time it takes for you to clear the balance. This starts from the day after the tax is due. From 7 April 2020, the late payment interest rate is 2.6%. 

If you act sooner rather than later, you could avoid paying the late penalties. However, you will be charged interest until the balance is cleared, even if you have set up a payment plan.

What if I can’t afford to pay my tax bill?

If you can’t afford to pay your tax bill, it’s better to address the situation sooner rather than later.

If you let HMRC know before the deadline, you might be able to avoid the late penalty. HMRC may be able to offer an alternative payment solution. The options are as follows:

Coronavirus (Covid-19) helpline

HMRC has set up a helpline if you are unable to pay your tax bill due to coronavirus. Further details about the Coronavirus (Covid-19) helpline are available on the gov.uk website.

Time to Pay

This is an arrangement that you can make with HMRC if you cannot pay your bill in full. The arrangement allows you to spread the cost so you can pay in instalments.

If you received a payment demand or a letter threatening legal action, call the office that sent the demand. You can make arrangements with them.

If you have not received a bill or letter, you can call the Payment Support Service (PSS). Contact details for the PSS are available on the gov.uk website.

Payment plan 

You can also spread the cost of a self-assessment tax bill if you are unable to pay. But, you must fulfil the following criteria:

  • The amount owed is £30,000 or less
  • You have no other payment plans or debts with HMRC
  • Your tax returns are up to date
  • It’s less than 60 days after the payment deadline

You can do this yourself by setting up the payments using the online Government Gateway portal. You don’t need to contact HMRC.

If you are not eligible for the plan or cannot use the online service, you should contact the self-assessment payment helpline. Contact details for this helpline are available on the gov.uk website.

Take home

If you are worried about what happens when you can’t pay your tax bill, it’s best to contact HMRC as soon as possible.

If you are experiencing financial problems, don’t feel like you have to deal with them alone. You can contact Citizen’s Advice or Step Change for help.

If you are experiencing financial problems due to the coronavirus pandemic, you may be eligible for business support. In addition, check out our article on grants for self-employed workers.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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