Dealing with income tax arrears

Summary

If you don’t speak to HMRC to arrange a time to pay agreement, they’ll charge penalties. You’ll be charged a penalty when your payment is 30 days late, on 3 March - unless it's a leap year, when you'll be charged on 2 March. You’ll also be charged another penalty again when the payment is 6 and 12 months late. The penalty is 5% of the original amount you owe HMRC - plus interest if you don’t pay straight away. If you’re self-employed and filled in a Self Assessment tax return to work out your income tax, you can check how much your penalty will be on GOV.UK. When you call HMRC about a time to pay agreement, you should be prepared to explain in detail why you can’t pay. You’ll be asked personal questions about your spending and finances. These will include what you earn and how much your household bills are. You can use a budgeting tool to work this out. Don’t guess if you don’t know an answer - ask if you can call back with the details they need. Tell HMRC if there are any special circumstances, for example you’ve had a serious illness or one of your customers became insolvent and didn’t pay you. If HMRC agrees that these are things you haven’t been able to plan for, they might be.

Key information

• what other family members earn
• what you spend on clothes or holidays
• what savings or other assets you have
• you made a mistake on your tax return
• you stopped being self-employed, but didn’t tell HMRC
• you missed filing a tax return, so your income tax has been estimated - HMRC call this a ‘determination’
• a payment you made previously hasn’t been taken into account
• your profits have fallen, so any payments on account included in your bill are too high
• take your possessions, including vehicles, to sell at auction (called ‘distraint’)
• take money directly from your bank account, if your debt is £1,000 or more
• make you bankrupt, or close down your business
• If you don’t speak to HMRC to arrange a time to pay agreement, they’ll charge penalties.

Practical guidance

• Source: Dealing with income tax arrears

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