If you cannot pay your tax in full on 31 January 2027, HMRC will usually let you pay in monthly instalments under a Time to Pay arrangement. Self Assessment debts of up to £30,000 can often be set up online once your return is filed. Interest still runs, but a plan requested in time can stop late payment penalties. Ignoring the bill and not contacting HMRC is the worst option.
Why 31 January 2027 can be a big bill
On 31 January 2027 most people in Self Assessment pay two things at once: the balancing payment for 2025/26, and the first payment on account for 2026/27. Each payment on account is normally half of last year's bill. If your tax went up, or this is your first year with payments on account, the January figure can be far larger than expected. Our guide to the 31 January 2027 deadline explains how the amounts are worked out.
If you already expect to struggle, you have more options in October than in February: paying in smaller amounts before the deadline, checking whether your payments on account are too high, and preparing for a plan.
Setting up a Self Assessment payment plan online
HMRC runs an online service for Self Assessment payment plans, paid by Direct Debit. In its recent announcements HMRC says that if you owe up to £30,000 you can usually arrange a plan online without speaking to anyone, as long as you meet its other conditions. Two points to know:
- File first. A plan cannot be set up until the return for the year has been filed. Filing early confirms what you owe.
- Have the details ready. You will need your Unique Taxpayer Reference, bank details for an account you can authorise a Direct Debit on, and a view of your monthly income and spending.
The service checks eligibility as you go. If you owe more than £30,000, or need longer than it allows, you can still ask for Time to Pay by contacting HMRC directly.
What HMRC will ask you
Time to Pay is based on affordability. Expect questions on:
- whether you could pay in full, and how much you can pay each month;
- your income and your usual monthly spending;
- savings and investments, and any other taxes you owe.
HMRC looks at what is left after housing, food, utilities and fixed costs, and usually asks for around half of that surplus each month. Paying more means less interest. If you have savings or assets, HMRC expects you to use them to reduce the debt first. A pension in payment counts as income, but the value of your pension pot is not treated as savings. If you have had independent debt advice, HMRC will accept a Standard Financial Statement as evidence of your finances.
There is no fixed maximum length, but HMRC's manual treats Self Assessment plans beyond 12 months as exceptional, so a longer request needs a good reason.
Business taxes: VAT, PAYE and corporation tax
HMRC also runs online payment plan services for VAT and employers' PAYE, each with its own limits and conditions. Larger debts, and corporation tax, are dealt with by contacting HMRC.
Companies face a tougher test. HMRC will want the debt reduced as far as possible first, for example by selling stock, vehicles or shares, and may ask directors to put in personal money or arrange borrowing. For VAT, asking for Time to Pay within the first 15 days after the due date can avoid late payment penalties altogether, and a plan agreed later can still reduce them.
Interest and penalties: what a plan does and does not stop
Interest always runs. Late payment interest is charged daily from the due date until you pay, plan or no plan. The rate is Bank of England base rate plus 4%, a margin that applies from 6 April 2025. The rate HMRC has published as current is 7.75%, in force from 9 January 2026, and it changes whenever base rate moves. On £10,000 unpaid for a year, that is about £775.
Penalties can be avoided. For your 2025/26 bill, the normal Self Assessment rules apply: 5% of whatever is still unpaid 30 days after the due date, and another 5% at both the six and twelve month points.
The law says that if you ask HMRC to defer payment and it agrees, you are not liable to penalties falling due from the date of your request to the end of the agreed period. HMRC's manual says the request must be made on or before the penalty date, and you must then keep to the plan. A late payment on account carries interest but no penalty of its own; penalties only bite if that tax is still unpaid after the following year's balancing payment date.
If you joined Making Tax Digital for Income Tax in April 2026, new rules apply from your 2026/27 tax, payable by 31 January 2028. Your 31 January 2027 payment stays under the old rules. The new rules are:
- Late filing: a points system. You get a point for each missed return deadline (and, from 2027/28, each missed quarterly update), and a £200 penalty once you reach 4 points.
- Late payment: nothing if you pay within 15 days; then 3% of the balance outstanding on day 15, another 3% of the balance on day 30, and a daily charge at 10% a year from day 31. In your first year under the new rules you get 30 days, not 15, to pay or contact HMRC about a plan. HMRC has said the two fixed charges will rise to 4% for 2027/28 tax; this still needs regulations to take effect.
- Payment plans: if a plan is agreed and you keep to it, penalties are paused from the date you contacted HMRC.
HMRC's guidance says the new penalty rules will extend to everyone filing a personal tax return from April 2027, whether or not they use Making Tax Digital.
| 2025/26 bill (due 31 January 2027) | 2026/27 bill under Making Tax Digital | |
|---|---|---|
| Late payment penalty | 5% each at 30 days, six months and twelve months | 3% at day 15, 3% at day 30, then 10% a year |
| Payments on account | No penalty, interest only | No penalty, interest only |
| Effect of a Time to Pay plan | Penalties avoided if requested by the penalty date and kept to | Penalties paused from first contact if agreed and kept to |
| Interest | Base rate plus 4% | Base rate plus 4% |
Reducing payments on account
If your income has fallen in 2026/27, you may be able to reduce the first payment on account due on 31 January 2027, and the second on 31 July 2027, by claiming online or on form SA303. The claim can be made up to 31 January 2028. This can cut the January bill to a level you can pay.
Be careful. If the final bill turns out higher than your reduced payments, HMRC charges interest on the shortfall from the original due dates. Base the claim on real figures for the year so far.
If you miss an instalment
HMRC will get in touch to ask what went wrong and will usually try to renegotiate. Better still, tell HMRC before you miss a payment if your circumstances change; plans can be lengthened or shortened. A new bill you cannot pay can often be added to the plan. Do not let the plan lapse without telling HMRC: if the agreement is broken, HMRC can charge the penalties it had held back.
If you ignore HMRC altogether, it can use debt collectors, take money from wages or pensions, and in England, Wales and Northern Ireland take money from bank accounts or take and sell goods (Scotland has its own procedures). It can also go to court or start bankruptcy proceedings, and for business taxes close a company down. HMRC warns you first, and you should act as soon as that warning arrives.
What to do now
- Estimate your 31 January 2027 bill now, including the first payment on account for 2026/27.
- If your income has dropped, consider a reasoned claim to reduce payments on account.
- File your 2025/26 return early and start paying towards the bill, even in small amounts.
- If you cannot pay in full, apply for Time to Pay within 30 days of 31 January, and keep every instalment.
- Open HMRC letters and reply. Early contact keeps more options open.
Our personal tax service covers returns, payments on account and dealing with HMRC. If you owe more than you can pay, or HMRC has already written to you, book a consultation and we will help you work out a realistic offer and deal with HMRC for you.
This article is general information about UK tax, based on the law and HMRC practice at the date shown above. It is not advice, and reading it does not make you our client. Tax rules change and their effect depends on your circumstances, so please speak to us before acting on it.