Tax due under Self Assessment for 2023/24 should have been paid in full by midnight on 31 January 2025, along with the first payment on account for 2024/25. Financially, January is a difficult time for many people and they may be unable to find the funds to pay all the tax that they owe. Where this is the case, ignoring the problem will not make it go away; rather, it will make it worse as interest and penalties will be charged, increasing the amount that will have to be paid to HMRC to clear the bill.

As far as interest and penalties are concerned, interest is charged from the due date to the date of payment. Currently, interest on overdue tax is charged at 2.5% above the Bank of England base rate. At the time of writing, the late payment rate was 7.25%. However, from April 2025, interest on overdue tax will be charged at a rate of 4% above the Bank of England base rate. It is easy to see how this can soon mount up. If tax remains due 30 days after the deadline, a penalty of 5% of the unpaid tax is charged. Further penalties of 5% of the unpaid tax are charged six months after the due date and 12 months after the due date.

Payment plans

However, there are steps that can be taken to take control of the situation and to clear the debt. One option is to set up a Time to Pay arrangement to pay the tax in instalments. It may be possible to do this online. Although interest will still be charged where payment is made in instalments, there will be no penalties to pay.

A taxpayer should be able to set up a Self Assessment payment plan online if all of the following apply:

· the latest tax return (i.e. that for 2023/24) has been filed;

· the date is within 60 days of the payment deadline;

· the amount owed is £30,000 or less; and

· the taxpayer does not have any other payment plans or debts with HMRC.

Taxpayers who are unable to set up a payment plan online should contact HMRC to see if it is possible to agree to pay what they owe in instalments. HMRC will take into account their income and expenses, and also whether they have any savings. Taxpayers with savings will be expected to use these to pay any tax that they owe.

When setting up a plan, it is important to be realistic about the payments and ensure that these are manageable – the taxpayer can always clear the debt earlier if they are able to do so. If a payment is missed, HMRC will usually contact the taxpayer to find out why. They may let the taxpayer renegotiate the plan. However, if payments are regularly missed, HMRC may start action to collect the debt in full. This may involve instructing a debt collector or collecting the tax direct from the taxpayer’s wages or bank or building society account. If the tax remains unpaid, HMRC may instigate court action.

Plan ahead

To ensure that money is put aside to meet future tax bills, consideration could be given to setting up a budget plan. This works a bit like a savings account in that the taxpayer makes regular payments to HMRC which are set against future tax bills. If the taxpayer has not put enough aside to meet the bill, the balance must be paid by the normal due date.