Paying your tax bill is a fundamental responsibility for anyone earning income in the UK, but the process is not always as simple as it sounds. Particularly for those who are self-employed, landlords, company directors, or anyone receiving income outside the Pay As You Earn system, figuring out how and when to pay tax can be complex. The various payment methods, rules, and deadlines can feel overwhelming, especially for those handling it for the first time. This guide is designed to help you understand what options you have, how they work, and what steps to take to ensure your payment is processed properly.
Understanding Why and When You Need to Pay
Tax obligations differ depending on your income source. Those who are employed under PAYE typically have their tax deducted directly from wages, but anyone earning additional income through self-employment, rental properties, dividends, capital gains, or other means will usually need to complete a Self Assessment tax return. Once that return is submitted, the responsibility falls on the individual to pay what is owed by specific deadlines.
There are two main dates that Self Assessment taxpayers need to be aware of. The first is 31 January, which is the deadline for submitting your tax return and paying the balance of tax owed for the previous tax year. If you are required to make payments on account, the second date is 31 July, when the second instalment is due. Missing either of these deadlines can lead to interest charges and penalties, so it’s crucial to plan ahead.
Checking Your Tax Calculation Before Payment
Before you make any payment, it’s important to review the amount HMRC says you owe. Mistakes can happen, especially if income has been reported incorrectly or expenses have not been deducted properly. If you’ve submitted your Self Assessment online, you can log in to your HMRC account to check your tax calculation. Look closely at the figures to make sure they reflect your income, allowable expenses, personal allowance, and any payments on account already made.
Errors in your tax return can affect your final bill, so make sure to correct anything that doesn’t add up. If you’re unsure about the calculations, it may be helpful to consult a tax professional before proceeding with payment. Even if you intend to handle the payment yourself, understanding exactly how the tax has been calculated can save you from issues later on.
Paying Online with a Debit or Credit Card
For most people, the easiest and quickest way to pay a tax bill is online through the HMRC website. This method is available 24 hours a day and is generally processed within a couple of working days. You can make payment using a debit card or, in some cases, a corporate credit card.
When using this method, you’ll need your Unique Taxpayer Reference (UTR), which is a ten-digit code unique to your tax records. This reference number must be included so that HMRC can allocate your payment to the correct account. Be aware that each online payment must be made in full and must relate to a specific type of tax. If you have multiple tax liabilities, such as income tax and capital gains tax, you may need to make separate payments for each.
It’s also worth noting that there are restrictions on how many times you can use the same card to make payments to HMRC within a year. These limits are based on industry standards and are intended to prevent misuse. In addition, HMRC no longer accepts personal credit card payments, a policy that was introduced in 2018. However, if you use a corporate credit card, be prepared for a non-refundable processing fee.
Always double-check your payment amount and ensure you receive a confirmation once the payment has gone through. Saving this confirmation can be helpful for your records and in case of any dispute later.
Sending a Cheque by Post
Although digital payments have become the norm, HMRC still allows tax payments by cheque. This option might appeal to those who are not comfortable with online banking or who prefer a paper trail. To pay by cheque, make it payable to ‘HM Revenue and Customs only’ and include your UTR on the back.
The cheque must be accompanied by a pay-in slip, which you can print from the HMRC website or request in the post. This pay-in slip ensures the cheque is matched to your account correctly. When preparing your payment, do not staple the cheque to the slip or fold them together. Any deviation from these instructions could delay processing.
It’s essential to send your cheque several working days before the deadline to allow for delivery and handling. HMRC considers the date of payment as the date they receive the cheque, not the date it was posted. Using recorded or special delivery services can provide you with proof of postage, which may be useful if the cheque is delayed or lost.
While not the fastest method, posting a cheque does give you the ability to maintain physical records, which some taxpayers find valuable for their documentation and peace of mind.
Paying at a Bank
In-person payments at banks are still an available option for taxpayers who prefer not to pay online or by post. While payments through Post Office branches are no longer accepted as of December 2017, certain banks are authorised to handle tax payments on HMRC’s behalf.
To pay your tax at a bank, you must bring a cheque, the relevant payslip, and an HMRC-issued tax bill that shows your UTR and the amount due. The bank will process your payment and issue a receipt. One advantage of this method is that the date of payment is recorded as the date you visit the bank, even if the money takes time to reach HMRC’s account. This can be particularly helpful if you’re close to the payment deadline and need same-day confirmation of payment.
Not all banks offer this service, and some may require you to book an appointment in advance. It’s a good idea to contact your local branch before making the trip to confirm they can process HMRC payments and to check what identification or documentation they may require. Although fewer people use bank counter payments today, it remains a reliable way to pay, especially if you want face-to-face assurance that the transaction has gone through.
Paying by Direct Debit
For those who prefer an automated approach, paying by direct debit can be a practical solution. This method allows HMRC to collect the amount due directly from your bank account on the scheduled date. You can set up a direct debit through your online HMRC account.
When setting up your first direct debit, it takes around five working days to process. Once the initial instruction is in place, future payments can usually be processed within three working days. This makes it a good option for those who want to avoid manual payments and ensure that deadlines are not missed.
Direct debit is particularly useful for Self Assessment taxpayers who make regular payments on account. You can authorise HMRC to collect payments on or before each deadline, reducing the risk of interest or late payment penalties.
There’s also the option of setting up a Budget Payment Plan. This allows you to spread the cost of your annual tax bill by making regular monthly or weekly payments in advance. The total amount must be paid off before the deadline, but it can make the process of paying large sums more manageable.
Make sure your account has enough funds on the agreed date, as a failed direct debit could result in charges and affect your standing with HMRC. Monitoring your account and keeping records of direct debits will help you stay on top of your commitments.
Alternative Payment Options
While less common, there are additional methods to pay your tax bill. For example, HMRC may accept telephone payments under certain circumstances. This involves using your debit or corporate credit card over the phone with the help of an HMRC representative.
This method is generally slower than paying online and may require waiting in a queue, but it can be useful if you’re experiencing technical difficulties or don’t have access to a computer. Ensure you have all your details ready, including your UTR and the amount you intend to pay.
Some taxpayers are also eligible to use their tax code to collect outstanding debts. This method is only available for those who are employed or receive a pension, and only if the total tax owed is below a certain threshold. In such cases, HMRC adjusts your tax code so that extra tax is deducted from your income throughout the year.
This method spreads the cost over time and eliminates the need for a large one-off payment. However, it may not be available in all situations and doesn’t apply to those who are fully self-employed or have no PAYE income.
Tax Payment Deadlines and What They Mean
For anyone completing a Self Assessment tax return, there are two crucial deadlines to remember. The first is 31 January, which is the final date to file your return for the previous tax year and pay the outstanding balance. If you are required to make advance payments towards the following tax year, then 31 July is the second key date for settling that second instalment.
These dates are fixed and do not change, regardless of weekends or public holidays. If the deadline falls on a non-working day, you must ensure your payment is received before that date. Leaving it until the final hours can be risky, especially with delays in processing or issues with your chosen payment method.
Missing these deadlines, even by one day, can result in penalties. For unpaid tax, interest is charged from the day after the deadline until the balance is settled. These interest rates are reviewed regularly and are linked to the Bank of England base rate, meaning they can increase during periods of economic change.
Understanding and respecting these deadlines is essential for avoiding financial consequences. Setting calendar reminders, automating payments, or arranging advance payment plans can all help in making sure you don’t miss what’s due.
What Happens if You Miss a Tax Deadline
If you fail to pay your tax bill by the required deadline, HMRC will apply penalties and interest. These penalties are separate from the interest charged and are calculated based on how late the payment is.
For example, if you miss the 31 January payment date, you may face the following consequences:
- An initial penalty of 5 percent of the unpaid tax if the payment is still outstanding 30 days after the deadline.
- A further 5 percent penalty if the tax is unpaid after six months.
- Another 5 percent if the tax remains unpaid after 12 months.
These penalties apply in addition to daily interest on the outstanding balance. The longer the delay, the higher the cost, which is why it’s always recommended to act quickly if you’ve missed a payment. Even if you can’t pay the full amount, getting in touch with HMRC early can help reduce the risk of further charges.
It’s also important to note that late filing penalties are separate from late payment penalties. If your tax return is submitted after the deadline, you may be charged a fixed penalty, even if no tax is owed. Combined, these charges can add up quickly, so timely action is crucial.
Contacting HMRC if You Can’t Pay
If you realise you won’t be able to pay your tax bill in full by the deadline, the best thing to do is to contact HMRC immediately. They are more likely to be flexible if you approach them in advance rather than wait for them to chase you.
HMRC operates a service that allows taxpayers to arrange a payment plan if they are unable to settle their tax bill in one go. This is referred to as a Time to Pay arrangement. It is designed for individuals and businesses who are struggling financially but are willing to pay what they owe in installments over time.
You can usually apply online for this service if you:
- Owe less than £30,000
- Have no other outstanding tax debts
- Have filed your most recent tax return
- Plan to repay the debt within 12 months
If you don’t meet these conditions, you’ll need to speak to an HMRC adviser directly. They may ask for details of your income, outgoings, assets, and savings to determine whether a payment plan is appropriate. It’s in your interest to be honest and provide full information so they can assess your situation accurately.
While a payment plan does not remove the obligation to pay interest on the amount owed, it can prevent further penalties and legal action, such as enforcement or debt recovery proceedings.
Setting Up a Time to Pay Arrangement
Setting up a Time to Pay arrangement is a relatively straightforward process for those who meet the eligibility criteria. If you are able to apply online, you’ll be guided through a series of steps to set the plan up, including:
- Confirming the amount owed
- Proposing how much you can afford to pay monthly
- Choosing a start date for the instalments
The system will automatically calculate a repayment schedule based on your proposal and tell you how much interest will accrue during the plan.
If you need to call HMRC to arrange a plan, be prepared for the conversation. It’s useful to write down your current monthly income and expenses, along with details of any savings, investments, or credit facilities. HMRC will want to understand your financial situation and may ask whether you can make a one-off lump sum payment or offer security against the debt.
Once the plan is agreed, you’ll need to stick to the payment schedule. Missing a payment could result in the arrangement being cancelled, and HMRC may take enforcement action to recover the full balance. Therefore, only agree to terms you know you can meet.
Monthly Budgeting and Advance Payments
One way to avoid last-minute financial pressure is to plan your tax payments throughout the year. This is especially helpful for self-employed individuals or anyone whose income fluctuates. Rather than waiting until January or July to pay a large lump sum, you can make voluntary payments on account.
HMRC allows you to pay in advance using a Budget Payment Plan. This is a flexible option that lets you make weekly or monthly payments towards your next tax bill. It can be set up through your online account and gives you the freedom to increase or decrease payments depending on your cash flow. You can even pause payments for a period of time, although the total still needs to be paid in full by the normal deadline.
This approach works well for those who prefer to spread the cost over time. It also helps build the habit of saving for tax, which can be a challenge when income is not fixed. The Budget Payment Plan is not a formal agreement like a Time to Pay arrangement and is more like a savings tool within the HMRC system.
Dealing With Unexpected Tax Bills
Sometimes, despite your best efforts, you may receive a tax bill that is higher than expected. This can happen for various reasons, such as:
- Forgetting to account for payments on account
- Overestimating allowable expenses
- Receiving unexpected income, bonuses, or dividends
- Adjustments from HMRC after a return is reviewed
When faced with a larger-than-expected bill, your first step should be to review the calculation in detail. Log in to your HMRC account and check how the figure was reached. Compare it with your own records and look for discrepancies.
If you believe the amount is incorrect, you can contact HMRC to raise a query. In some cases, you may need to amend your tax return. If the return is accurate but the amount is still unaffordable, then applying for a payment plan becomes the most realistic option.
It’s essential not to ignore a surprise tax bill. Even if you disagree with the amount, failure to act will still result in penalties and interest. Open communication with HMRC and a proactive approach are always more effective than silence.
Using Third Parties to Help Manage Payment
While many people choose to manage their own tax payments, some prefer to work with professionals or use software to help calculate their tax liabilities and organise their finances. A tax adviser or accountant can review your records, check your return for errors, and help you understand your obligations. They can also assist with setting up payment plans and negotiating with HMRC if necessary.
In cases where your tax affairs are more complex, such as when multiple income sources are involved or you’re dealing with historic arrears, professional advice can be especially useful. Getting a second opinion on your tax calculation could even reduce your bill if eligible allowances or reliefs have been missed.
It’s also worth exploring digital tools that allow you to forecast your tax bill, track your income, and plan future payments. These tools can give real-time insight into what you owe and how much you should be setting aside each month. Staying organised throughout the year makes paying your tax bill far less stressful when the deadline approaches.
Keeping Records and Monitoring Your Account
Another key part of managing your tax payments is maintaining accurate records. Whether you’re self-employed, receive rental income, or earn money from freelance work, keeping clear and consistent documentation makes it much easier to understand and manage your tax position.
Maintain a file of:
- Income statements or invoices
- Receipts for allowable expenses
- Copies of previous tax returns
- Correspondence with HMRC
- Proof of payments made toward your bill
It’s also advisable to regularly log in to your HMRC online account. This platform provides real-time information about your liabilities, payments received, and any action you may need to take. Monitoring your account periodically throughout the year helps ensure you don’t miss deadlines or overlook important updates.
Understanding the Main Tax Payment Deadlines
The United Kingdom tax system includes key deadlines for different types of taxes. For those who submit a Self Assessment tax return, there are two primary dates to be aware of each year. The first is 31 January, which is when the balancing payment for the previous tax year is due. The second is 31 July, when the second payment on account is required for the current tax year.
Missing these deadlines can trigger automatic penalties. These penalties are not limited to just the unpaid tax but include interest calculated daily from the date the payment becomes overdue. Additionally, if you continue to miss payments, HMRC may issue further financial sanctions and take enforcement action.
What Happens If You Miss a Payment Deadline?
The consequences of missing a tax payment can escalate quickly. If you fail to make your Self Assessment payment by the 31 January deadline, HMRC will charge interest from 1 February until the date the payment is made. If your payment is still outstanding after 30 days, a 5% surcharge will be applied to the amount owed. Additional surcharges follow at the six-month and twelve-month marks.
For Corporation Tax, payment is due nine months and one day after the end of your company’s accounting period. Missing this deadline triggers similar interest charges, although penalties for late Corporation Tax payment are less immediate compared to those for late filing.
It’s worth noting that HMRC does not send out reminders for payment deadlines. The responsibility lies with the taxpayer to track and meet them. This means setting personal reminders or using tax software can be helpful in avoiding missed deadlines.
Common Mistakes When Paying Your Tax Bill
Even when taxpayers intend to pay on time, mistakes can lead to late or misallocated payments. One of the most frequent errors involves entering the wrong payment reference. Using the incorrect reference can result in HMRC applying the payment to the wrong account or tax year. Always use your Unique Taxpayer Reference or Accounts Office reference, depending on the type of tax, and ensure it is formatted exactly as instructed.
Another mistake is waiting too long to make the payment. Some methods, like bank transfers or setting up a new Direct Debit, take a few days to process. Leaving payment until the last minute might mean it arrives late, even if it left your account before the deadline. HMRC considers the date the payment clears into their account—not the date it leaves yours.
Some taxpayers assume that weekends or bank holidays extend the deadline. Unless HMRC explicitly allows for this, payments must clear on the working day before a non-banking day. For example, if 31 January falls on a Sunday, your payment should reach HMRC by the preceding Friday.
What to Do If You Can’t Afford to Pay Your Tax Bill
If you’re struggling financially and know you won’t be able to pay your tax bill in full, the worst thing you can do is ignore the problem. HMRC provides a service known as Time to Pay, which allows you to set up a payment plan to spread the cost over several months.
You can usually apply for this service online, provided you meet certain conditions. These include owing less than £30,000, being within 60 days of the payment deadline, and having no other outstanding tax debts. The system allows you to propose a monthly repayment amount based on your current financial circumstances.
If you owe more than £30,000 or are further behind on your payments, you’ll need to speak with HMRC directly to discuss a bespoke payment arrangement. During this call, HMRC will ask for information about your income, outgoings, savings, and assets. This helps them assess your ability to pay and determine whether a Time to Pay arrangement is appropriate.
Missing payments under a Time to Pay agreement can lead to its cancellation. If that happens, HMRC will demand the full balance and may pursue enforcement action, including taking money directly from your bank account or referring the debt to a collection agency.
Enforcement Action for Unpaid Taxes
If tax remains unpaid without an arrangement in place, HMRC has the authority to enforce payment. This may begin with debt collection letters and phone calls, followed by more serious actions such as issuing a County Court judgment (CCJ) against you. This can affect your credit rating and make it harder to borrow money in the future.
HMRC can also apply for a distraint order, which allows them to seize assets from your business or home. These assets can be sold at auction to cover your tax debt. In some cases, HMRC may apply for bankruptcy or liquidation proceedings against individuals or companies with large unpaid tax liabilities.
Enforcement is typically a last resort. HMRC encourages taxpayers to engage early if they experience difficulty, and the availability of Time to Pay options often avoids these more severe outcomes.
Can You Appeal a Late Payment Penalty?
If you receive a penalty for late payment, you may be able to appeal it—if you have a reasonable excuse. HMRC has a set list of what qualifies as reasonable. These include events such as a serious illness, bereavement, or a postal or banking error outside of your control. Simply forgetting the deadline or not having the money available is unlikely to be accepted.
To appeal a penalty, you must do so within 30 days of the penalty notice being issued. Appeals can be submitted online or by post. You’ll need to explain your situation in detail and provide evidence where possible. For example, if your bank had a system outage, a statement or communication from the bank can help prove your case.
If HMRC rejects your appeal, you can ask for an internal review or take the matter to a tax tribunal. However, these steps may involve additional time and potentially legal costs, so they’re generally only worth pursuing if your case is strong.
Tips for Avoiding Payment Problems
To avoid problems with paying your tax bill, consider the following tips:
First, don’t wait until the last moment. Even if you’re planning to pay electronically, initiating the payment a few days in advance gives you a buffer in case of technical issues or delays.
Second, regularly check your HMRC online account. It allows you to view your tax liabilities, upcoming payment deadlines, and any messages from HMRC. Keeping an eye on this account can help you stay informed and avoid nasty surprises.
Third, set up a separate savings account where you can regularly transfer a portion of your income for tax. This practice is especially useful for sole traders and company directors who do not have tax deducted at source. By saving throughout the year, you can ease the financial burden when deadlines arrive.
Lastly, if you receive an unexpectedly high tax bill, don’t panic. Review it carefully to make sure it’s correct. Mistakes can happen, and if something doesn’t look right, contact HMRC for clarification.
Using Professional Help
In complex situations, working with a tax adviser or accountant can be worthwhile. They can help you calculate your tax liability accurately, ensure payments are made correctly and on time, and negotiate with HMRC on your behalf if you run into trouble.
Although you can manage your tax payments without professional help, those with irregular income, multiple income sources, or historic tax issues may benefit from external guidance. Tax professionals also keep up with changes to tax rules and can alert you to deductions or schemes that may reduce your bill legally.
It’s important to select a reputable adviser who is familiar with HMRC’s processes and expectations. Mistakes made by an inexperienced or careless adviser may lead to penalties that ultimately fall on you, the taxpayer.
Can You Make a Partial Payment?
In some cases, you may be able to make a partial payment towards your tax bill. This doesn’t eliminate the debt, but it shows HMRC that you are taking steps to reduce it. Making a partial payment may help reduce the interest that accrues while you’re setting up a Time to Pay agreement or sorting out the full amount.
It’s critical to communicate clearly with HMRC if you intend to pay in stages. Simply sending part of the money without explanation may not prevent penalties or enforcement action.
Always include your payment reference with each transaction, even if you’re making multiple payments. This helps HMRC allocate the money correctly and avoids confusion or delays in updating your account.
What About Payments Made From Overseas?
If you are a UK taxpayer currently living abroad or making a payment from a foreign bank account, you can still pay your UK tax bill using international bank transfer. HMRC provides specific account details for international payments, and you must ensure the payment is made in sterling.
When paying from abroad, it is especially important to account for transfer times and currency conversion delays. Banks outside the UK may take longer to process the payment, so initiating the transfer at least a week in advance of the deadline is advisable.
Make sure to use the correct payment reference and double-check HMRC’s international bank details, which may differ from the domestic payment account. If the money arrives late or in the wrong currency, HMRC may consider the payment incomplete.
Tax Refunds and Overpayments
In some cases, taxpayers may pay more than they owe. If this happens, you can claim a refund through your online HMRC account. Overpayments often result from miscalculations, changes in income, or duplicate payments. If you believe you’ve overpaid, it’s a good idea to check your account summary before filing a refund request.
Refunds can take a few weeks to process, especially during peak tax periods. HMRC usually pays them directly into the same bank account used for the payment, although you can nominate a different account if necessary.
Make sure your bank details are up to date in your HMRC online profile. Incorrect details may lead to delays or rejected refund payments, which can take additional time to rectify.
Conclusion
Paying your tax bill might seem like a daunting task at first glance, especially if you’re self-employed or fall outside of the traditional PAYE system. However, with a clear understanding of your options and careful planning, the process can be handled smoothly and with minimal stress. Whether you choose to pay online by debit card, send a cheque, visit your bank, or set up a direct debit, the most important factor is to ensure your payment is accurate, timely, and properly referenced with your Unique Taxpayer Reference to avoid errors or penalties.
Each payment method has its own set of advantages and considerations. For example, online payments offer speed and convenience, while direct debits can help you stay on top of deadlines without manual intervention. Traditional options like cheques and bank payments still exist for those who prefer a paper trail or face challenges with digital systems. If you anticipate difficulty paying in full, you may be able to arrange a Time to Pay plan with HMRC, but this should be done before the due date.
Understanding the deadlines, preparing in advance, and keeping accurate financial records are key to successfully managing your tax obligations. Avoiding late payment penalties and interest charges not only saves money but also preserves your peace of mind. Taking the time to learn how to pay your tax bill effectively is an investment in your financial stability and helps ensure that you remain compliant with your responsibilities.