Owing HMRC: how payment plans work and what happens if you do not pay

If you cannot pay a tax bill in full, HMRC may agree to monthly instalments. This guide explains how a plan works, what it costs in interest, what happens if no plan is agreed, and where free help is.

What a payment plan is and who can ask for one

When a tax bill is overdue and cannot be paid in one go, HMRC may agree a payment plan, where the debt is cleared in monthly instalments, usually by Direct Debit. GOV.UK says HMRC checks whether a plan is affordable, so it is not automatic. HMRC also expects people to use any savings or other assets to reduce the debt as far as they can before spreading what is left. If no plan can be agreed, HMRC will ask for the full amount owed. GOV.UK's guidance applies to overdue bills for taxes such as Self Assessment, and has separate notes for company tax.

Many people can check whether they qualify and set up a plan through HMRC's online service. You will usually need the reference number for the tax you owe, such as a Unique Taxpayer Reference (usually shown on HMRC letters), details of a UK bank account you are authorised to set up a Direct Debit on, and details of your income and spending. Where a plan cannot be set up online, GOV.UK says to contact HMRC and be ready to explain whether you can pay in full, how much you can afford each month, any other taxes you owe, your usual outgoings, and any savings or investments.

How much you pay each month, and the cost of waiting

GOV.UK says that HMRC will usually ask for around half of what you have left over each month, after your usual spending, to go towards the debt. Paying the debt faster means paying less in total, because less interest builds up. Evidence of income and spending can come from a Standard Financial Statement, a common form used by free debt advisers such as Citizens Advice, which HMRC accepts. A plan does not make the debt disappear, and it does not stop interest. It spreads the payments over time.

Interest on late tax is set by reference to the Bank of England's Bank Rate. GOV.UK states that late payment interest is currently set at Bank Rate plus 4%. The Bank of England's page shows Bank Rate at 3.75%, held at its most recent decision, published on 17 September 2026. Adding 4 to 3.75 gives 7.75%, which matches the figure on GOV.UK's HMRC interest rates page (7.75% from 9 January 2026). That rate is variable, so it can change when Bank Rate changes. Separately, Self Assessment late payment penalties are 5% of the unpaid tax at 30 days, six months and twelve months after the due date.

A worked example

The figures below are illustrative only and are not a forecast. Suppose a person owes £3,000 in overdue tax and, after their usual spending, has £400 a month left over. Using the roughly-half rule above, a plan might be about £200 a month, which would take 15 months, because 3,000 divided by 200 is 15. Interest would still be added while the balance is outstanding. At 7.75% a year, interest on the full £3,000 for one year would be £232.50, since 3,000 multiplied by 0.0775 is 232.50. In practice the balance falls each month, so the interest would be lower than that ceiling. If the same person paid £400 a month, the debt would clear in 7.5 months, so about eight payments, and less interest would build up.

If no plan is agreed

HMRC says it uses enforcement powers as a last resort and tries to agree a way forward first. Its guidance lists several routes, and they differ by nation. HMRC can change a tax code to collect a debt through PAYE, taking up to 50% of gross income that way. In England, Wales and Northern Ireland it can take money directly from a bank or building society account where the debt is £1,000 or more and enough money is left for reasonable living costs, with safeguards for people in hardship. It can also use enforcement agents (bailiffs) in England, Wales and Northern Ireland, or a summary warrant in Scotland, and go to court. HMRC says it always warns first.

Common mistakes and what to check

• Waiting. Interest builds up while a balance is unpaid, so a smaller balance sooner means less interest.
• Treating a plan as a write-off. The full tax is still owed and interest still applies.
• Missing a payment. GOV.UK's guide covers what happens if a payment is missed, so it can be worth reading that page and contacting HMRC early if money is tight.
• Ignoring other debts. Free advisers can help look at all debts together.
• Assuming the rules are the same everywhere. Enforcement powers differ across England, Wales, Scotland and Northern Ireland.

Where to get free help

Free, independent debt advice is available. GOV.UK points to MoneyHelper in England and Wales, Scotland Debt Solutions in Scotland and Advice NI in Northern Ireland. Citizens Advice can also help, including with a Standard Financial Statement. GOV.UK also links to guidance on getting extra support from HMRC for people who need it. You cannot appeal HMRC's decision on a payment plan, but you can complain about how you were treated through HMRC's complaints process. Debt can be stressful, and asking for help is normal.

Check before you act

Rules, rates and limits can change, so please confirm the current position on the official pages linked below before relying on anything here. This guide is general information, not personal advice.

Sources

• GOV.UK, Difficulties paying HMRC: setting up a payment plan
• GOV.UK, Difficulties paying HMRC: how much you will pay
• GOV.UK, Difficulties paying HMRC: help and advice
• GOV.UK, What will happen if you do not pay your tax bill
• GOV.UK, Self Assessment penalties
• GOV.UK, HMRC interest rates for late and early payments
• GOV.UK, HMRC revises interest rates for late payments
• Bank of England, Bank Rate