How to Set Up a Self Assessment Payment Plan if You Can't Pay Your Tax Bill

If you can't pay your Self Assessment tax bill by the deadline, you can contact HMRC to arrange a Self Assessment payment plan and avoid penalties.

Every January, hundreds of thousands of people in the UK find themselves staring at a tax bill they can't cover – whether that's down to a bad quarter, an unexpected expense, or just an incorrect calculation of what they owe.

However, not being able to pay in full today doesn’t have to mean a financial panic tomorrow. This guide explains what to do if you can't pay your Self Assessment tax bill and how to set up a payment plan that spreads the cost.

Key points

• File your tax return even if you can't afford the bill 📝
  Filing on time avoids separate late filing penalties and gives you a confirmed tax bill. You have to file your return before you can arrange certain payment plans with HMRC.
• A Time to Pay arrangement can spread the cost 📅
  If you meet HMRC's criteria, you may be able to pay your Self Assessment bill in instalments, usually over up to 12 months through the online service. Larger debts or longer repayment periods may require you to contact HMRC directly.
• Don't agree to payments you can't maintain 🤝
  If you can't manage the proposed amount, explain your circumstances rather than missing payments, as a failed arrangement can leave you dealing with the outstanding debt again.
• Know your tax position before the deadline with ANNA 📊
  ANNA can help you avoid unexpected Self Assessment bills with real-time tax estimates, automated bookkeeping, and Smart Pots for setting tax money aside. You can also file your Self Assessment for free the first year with ANNA.

What happens if you don’t pay on time?

If you don't pay your Self Assessment tax bill by 31 January, HMRC starts charging late payment interest on the outstanding amount from the following day.

The late payment interest rate is currently 7.75%, effective from 9 January 2026, and is set at the Bank of England base rate plus 4%.

Interest applies to the amount you still owe, which may include both a balancing payment for the previous tax year and a payment on account towards the current year. It’s separate from any late payment penalties and continues to stack until you pay the balance in full.

There’s no grace period after the deadline. Paying off part of the bill reduces the amount on which future interest is charged, so paying what you can as soon as possible can help keep the total cost down.

🧠 Good to know

Interest is different from a penalty. A penalty is a charge for failing to meet a tax obligation on time, while interest reflects the cost of having an unpaid tax balance. Both can increase what you ultimately have to pay.

Late payment penalties can increase the bill

Interest isn't the only additional cost. If your tax remains unpaid, HMRC can also charge late payment penalties at different points:

Keep in mind that these penalties are changing. If you’re in Making Tax Digital for Income Tax, a new system applies from the 2026/27 year: 3% of the tax outstanding at day 15, another 3% at day 30, then 10% a year from day 31. It applies to all Self Assessment taxpayers from April 2027.

The penalties apply to your balancing payment, not to payments on account, which attract only interest. Penalties are added to the outstanding tax and interest, so if you owe a £5,000 balancing payment six months after the deadline, you could face £500 in late payment penalties before interest is included.

💡 Did you know?

ANNA's Auto Accountant can give you a running estimate of what you're likely to owe, so you can see your tax position throughout the year. This gives you more time to set money aside or take action if you expect to have trouble paying.

File your tax return even if you can't pay

If you can't afford your tax bill, you should still file your Self Assessment tax return before the deadline.

Filing on time gives you an accurate figure for your tax bill, and you'll need to have filed to set up certain Self Assessment payment plans with HMRC.

Also, missing the Self Assessment deadline can lead to penalties, even if there is no tax to pay.
Here’s how the late filing penalties work:

What types of Self Assessment payment plans are available?

HMRC offers several ways to spread the cost of your tax bill, depending on your circumstances:

Time to Pay (online)

This is the standard option for most people. You can set it up through your Government Gateway account if you owe £30,000 or less and have filed all your returns. You’ll need to apply within 60 days of your payment deadline, and you can usually spread the balance over up to 12 months.

Budget Payment Plan

The Budget Payment Plan works differently to the other options, as it's for money you don't owe yet. You choose a weekly or monthly amount to pay HMRC voluntarily ahead of your next Self Assessment bill, so there's less to pay in one go when the deadline arrives. You can start, stop, or change the amount at any time.

However, you can only set one up if you’re up to date with your Self Assessment payments and don’t already have a Time to Pay arrangement.

Collection through your tax code

If you owe less than £3,000 and you're employed or receive a pension alongside your Self Assessment income, HMRC may be able to collect what you owe automatically through your tax code over the following tax year instead of asking for a lump sum.

This usually only applies if you file your return early enough (by 30 December) for HMRC to adjust your code in time.

Setting up a Self Assessment payment plan

You can apply for a payment plan online if you:

• Owe £30,000 or less
• Have filed all your tax returns
• Are within the relevant period for setting up an online arrangement
• Don't have other outstanding payments that prevent you from using the service
• Don't already have an active payment plan with HMRC

HMRC's online service generally allows you to spread the balance over up to 12 months. However, the exact repayment period and monthly amount will depend on your circumstances.

How to apply

Before applying, make sure you've filed your Self Assessment return so HMRC has a confirmed amount for you to pay. Then, sign in to your HMRC online account and use the payment plan service.

You’ll need to provide information about your income, regular expenses, and ability to pay. HMRC uses this information to assess whether the proposed instalments are realistic.

If HMRC accepts your application, you'll agree a monthly amount and payment date.

Payments are made by Direct Debit, and it's important to make each payment on time because failing to keep up with the arrangement can cause it to be cancelled.

What if you owe more than £30,000?

If you owe more than £30,000, or you need longer than 12 months to repay the debt, you may still be able to arrange Time to Pay, but you'll need to contact HMRC directly rather than using the standard online service.

HMRC will review your financial circumstances and may ask you to explain your income, essential expenses, assets, and other debts. You'll need to propose an amount you can realistically afford to pay each month. HMRC's general goal is to make the arrangement as short as possible while still keeping it affordable.

🧠 Good to know

A payment plan stops the late payment penalties and helps you manage the debt, but it doesn't freeze the interest, so paying the balance sooner can reduce the overall cost.

What happens if you ignore your tax bill

If you don't pay or contact HMRC, the debt will increase, and HMRC can take several steps to recover the money.

Depending on the circumstances, HMRC may use debt collection procedures or take money directly from your bank or building society account. More serious cases can involve court action and additional costs.

Contacting HMRC early is usually the cheapest, least stressful way to clear the debt.

What to do if you can't afford the payment plan

If you can't afford the instalments HMRC proposes, explain your situation rather than agreeing to payments you won't be able to maintain. Missing agreed payments can cause the arrangement to fail, leaving you with the outstanding balance to deal with again.

If your tax debt is part of wider financial difficulties, consider getting independent debt advice. Citizens Advice or a qualified debt adviser can help you weigh your tax debt alongside any other money you owe, and an accountant can help you understand your options.

How ANNA helps you stay on top of your tax

If you don’t track your income and expenses through the year, a Self Assessment bill can land as an unwelcome surprise, often too late to set the money aside.

ANNA keeps your finances and tax position up to date as you go, so you can see what’s coming and plan for it.

With ANNA, you can:

• Get real-time tax estimates: See an up-to-date estimate of your tax liability as your income and expenses change
• Automate your bookkeeping: Keep your business income and expenses organised without having to record every transaction manually
• Capture receipts: Photograph and store receipts as you spend to make it easier to maintain accurate records and claim allowable expenses
• Create and track invoices: Send invoices, monitor payments, and keep your business income organised in one place
• Set money aside for tax: Use Smart Pots to separate money for upcoming tax bills, so you're less likely to spend what you've already earmarked for HMRC
• File your Self Assessment: Prepare and submit your Self Assessment tax return through ANNA and easily stay on top of your personal tax obligations
• File Corporation Tax: Manage and submit your company's Corporation Tax return, with your business tax information organised in one place
• Manage VAT: Track what you owe and submit your returns on time
• Stay on top of PAYE: Manage all your PAYE-related tax admin and other employer responsibilities in one place
• Get 24/7 support: Access help with your account, bookkeeping, or tax admin whenever you need it

Don't let your tax bill catch you off guard. Sign up with ANNA today.