Most people see their Self Assessment bill for the first time in the third week of January. If the bill is bigger than the balance in your bank account, that is a horrible moment. It is a much less horrible moment in October, because there is still time to do something about it.
The good news is that HMRC is far more practical about this than its reputation suggests. If you cannot pay in full, you can very often pay in instalments instead, and in most cases you can set that up yourself online in a few minutes without speaking to anyone. Here is how it works, what it costs, and how to avoid needing it next year.
What a payment plan actually is
HMRC calls it Time to Pay. You agree to clear what you owe in regular monthly amounts, collected by Direct Debit, rather than in one lump on the deadline. HMRC looks at what you can reasonably afford and sets the instalments accordingly.
It is not a favour and it is not a black mark. HMRC would much rather collect tax steadily than chase it, and tens of thousands of Self Assessment customers set up plans every year.
Can you set one up online?
For Self Assessment, you can arrange a plan online, without phoning anyone, if all of these are true:
- You owe £30,000 or less.
- You have filed your latest tax return.
- You are setting it up within 60 days of the payment deadline.
- You have no other payment plans or debts with HMRC.
For the bill due on 31 January 2027, that means the online route stays open until around 1 April 2027. You will need your Unique Taxpayer Reference, the details of a UK bank account you can set up a Direct Debit on, and a rough picture of your monthly income and spending, because HMRC will ask what you can afford.
If you owe more than £30,000, or you are outside the 60 days, you are not shut out. You simply have to call HMRC and agree the plan with a person. Expect questions about your income, your outgoings and any savings, because HMRC will expect you to use money you already have before it agrees to wait for the rest.
What it costs
A payment plan stops the tax being treated as unpaid and ignored. It does not make it free.
Interest still runs. HMRC charges late payment interest on the outstanding balance from the day after the due date until it is cleared. The rate is currently 7.75 per cent a year, set at the Bank of England base rate plus four percentage points, so it moves when the base rate does. On £6,000 cleared evenly over six months, that works out at roughly £135. That is a real cost, but a great deal less than the alternatives.
Penalties can be avoided. This is the part worth knowing. For a 2025 to 2026 return, a late payment penalty of 5 per cent of the unpaid tax is added 30 days after the deadline, with further 5 per cent penalties at six months and twelve months. If you agree a plan before a penalty date, and then keep to it, those penalties are not charged. On a £6,000 bill, the first one alone is £300.
So the arithmetic is simple. A plan agreed in good time costs you interest only. A bill left unpaid, with no plan in place, costs you interest and penalties, and eventually a much less friendly letter.
The catch is keeping to it
A plan only protects you while you keep to it. Miss instalments and HMRC can cancel the arrangement, ask for the whole balance at once, and the penalties you avoided can come back into play. If your circumstances change part way through, contact HMRC before you miss a payment rather than after. It is a much easier conversation to have in advance.
It is also worth remembering that a plan covers the tax you already owe. It does nothing for the next bill. If your January figure includes a payment on account for the current year, the second one still arrives on 31 July, and it will overlap with your instalments unless you plan for it.
If the company is the one that cannot pay
Payment plans are not only for individuals. A limited company that cannot meet its Corporation Tax, PAYE or Value Added Tax bill can also ask for time to pay, and some of those can be set up online too, each with its own limits. The same principles apply: ask before the deadline, have a realistic proposal, and keep to it. A company that is regularly short at tax time usually has a cash flow problem rather than a tax problem, and that is worth looking at properly. Our guide to the Corporation Tax payment deadline explains when the company’s bill actually falls due.
Better still, never need one
A payment plan is a sensible safety net, but it is a poor way to run every year. The people who never need one tend to do three things.
- Find out the number early. Your 2025 to 2026 return can be filed now, and filing early does not mean paying early. It just means January is not a surprise. Our guide to filing your tax return early explains the case, including the option to have a bill under £3,000 collected through your tax code if you file by 30 December.
- Pay in advance if you like. HMRC runs a Budget Payment Plan, which lets you pay weekly or monthly towards your next bill by Direct Debit, before it is due. You choose the amount, and you can pause it if money is tight. It is a payment plan in reverse: you pay before the bill arrives instead of after, and there is no interest to pay.
- Put tax aside as you earn. A separate savings account and a fixed percentage of every invoice will do more for your January than any amount of good intentions.
We tell you in the autumn, not in January
Our clients know what they owe months before they have to pay it, because their returns are prepared through the year rather than in a January scramble. If a bill is going to be difficult, we would much rather know in October, when there is time to plan, than find out alongside you at the end of January.
Our Sole Trader service is £62.50 per month, fixed, and includes the return, the filing and the conversation about how to pay for it, with no extra charge for picking up the phone.
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