Last updated: 14 October 2026
Is it OK to pay a creditor instead of paying your Self Assessment tax?
It is risky. If you pay other debts instead of your tax bill, HMRC charges interest from the day after the deadline and late payment penalties after 30 days, 6 months and 12 months. It can then take enforcement action. A better option is to contact HMRC before the deadline and set up a Time to Pay arrangement. That can stop the late payment penalties, although interest still applies.
What happens if you don’t pay on time
| When | Charge |
| 1 February | Interest starts, at the Bank of England base rate plus 4% |
| 30 days late | 5% penalty on the unpaid tax |
| 6 months late | A further 5% |
| 12 months late | A further 5% |
Different penalty rules apply if you are in MTD for Income Tax from 2026/27. For VAT-style rules, see VAT late filing penalties.
Time to Pay for Self Assessment
If you owe £30,000 or less, have no other payment plans or debts with HMRC and have filed your latest return, you may be able to set up a payment plan online. It must be set up no later than 60 days after the due date. Above £30,000, or if you need longer than 12 months, call HMRC’s Payment Support Service.
Example
Daniel owes £8,000 on 31 January but has a supplier demanding payment. He sets up a 12-month online plan for about £670 a month plus interest, and pays the supplier. He avoids the 5% late payment penalty of £400 and keeps his business running.
Why HMRC is a priority creditor
HMRC can:
- collect debts directly from your bank account in some cases
- take control of goods
- apply for bankruptcy or company winding-up
- add the debt to your tax code
Ignoring HMRC rarely ends well, while most suppliers will negotiate.
Tips to avoid this situation
- Set aside 25% to 30% of profits in a separate savings account
- If your income has fallen, apply to reduce your payments on account (form SA303)
- Use HMRC’s budget payment plan to pay in advance by direct debit
- File early, so you know the bill well before 31 January
If you are a limited company director
Company tax and VAT are the company’s liabilities. Paying creditors in preference to HMRC when a company is insolvent can create personal risk for directors. Take advice early.
Mistakes when you can’t pay your tax bill
Ignoring HMRC’s letters is the biggest mistake, because debt collection gets more expensive the longer it goes on. Contact HMRC before the deadline, if possible. Make sure your returns are up to date, because HMRC won’t agree a payment plan while returns are missing. Budget for the next bill too, so a payment plan doesn’t leave you short when it falls due.
Frequently asked questions
Will a Time to Pay plan affect my credit rating?
No. HMRC doesn’t report to credit agencies.
Can I pay by credit card?
Not with a personal credit card, which HMRC no longer accepts. You can pay by debit card, or by corporate credit card for a fee.
What if I can’t afford the instalments?
Call HMRC as soon as possible to agree a lower amount.
Does interest stop under a plan?
No, it continues on the outstanding balance.
Related: sole trader tax returns and self assessment penalties.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with dealing with a tax bill you can’t pay. See our self assessment accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
