How to Deal With HMRC Debt: Time to Pay, Penalties, and Enforcement

If you owe HMRC money you can’t pay in full, the practical way to deal with HMRC debt is to confirm the figures on your Personal Tax Account, then set up a Time to Pay arrangement so the balance clears in monthly installments before penalties and enforcement start piling on. Interest runs at 7.75% from 9 January 2026, and Self Assessment late payment penalties of 5% each hit at 30 days, six months, and twelve months past the deadline.¹² Ignore the letters and HMRC’s recovery powers escalate quickly, from a quiet change to your tax code to money leaving your bank account without a court order.

Check the Figures Before You Pay Anything

Most people first hear about an HMRC debt through a letter. A P800 tax calculation says you paid too much or too little tax for a specific year.³ If HMRC can’t collect what you owe through your wages, or if you owe more than £3,000, you may get a Simple Assessment letter instead.⁴

Verify before you act. Scam letters impersonating HMRC are common, and genuine letters sometimes contain mistakes. Sign in to your Personal Tax Account through GOV.UK and check the current balance, along with any interest or penalties already added.⁵ The online account is the definitive record. If the numbers on the letter don’t match what you see there, call HMRC to resolve the difference before committing any money.

What Unpaid Tax Actually Costs

Interest accrues daily. The late payment rate is pegged to the Bank of England base rate plus 4%, and it stands at 7.75% from 9 January 2026.¹ Penalties do the heavier damage.

For Self Assessment, the late payment penalties are:²

30 days late: 5% of the unpaid tax
6 months late: another 5%
12 months late: another 5%

They stack. A bill left unpaid for a year picks up 15% in penalties on top of the daily interest. Filing late brings its own separate set of penalties, running independently of the payment penalties:

1 day late: £100 flat
3 months late: £10 per day, up to £900
6 months late: 5% of the tax due or £300, whichever is higher
12 months late: another 5% or £300, whichever is higher

Someone who filed late and paid late faces both. That is how a manageable bill turns into an unmanageable one inside a year.

Setting Up a Time to Pay Arrangement

A Time to Pay (TTP) arrangement is a formal agreement to clear the debt in monthly installments. It doesn’t reduce what you owe, and interest keeps accruing on the outstanding balance, but it stops enforcement action for as long as you make the payments and stay current on any new tax bills.

If your Self Assessment debt is £30,000 or less, you can set the plan up online without speaking to anyone at HMRC. The tool lets you pick a repayment period, set up a Direct Debit, and see exactly how much interest you’ll pay over the life of the plan. You need to be within 60 days of the payment deadline and up to date with your tax returns to qualify for the self-service route.⁶

For debts over £30,000, longer repayment periods, or other taxes such as VAT or Corporation Tax, call HMRC’s Payment Support Service. Before you call, get your income and expenditure figures together, along with recent bank statements and your Unique Taxpayer Reference or VAT registration number. The agent will assess what you can realistically afford from your disposable income and propose terms on that basis. Come with clear numbers rather than rough estimates.

Once the TTP is agreed, HMRC sends a confirmation letter with the schedule, interest charges, and the consequences of missing a payment. If something changes during the arrangement, such as a job loss or serious illness, contact HMRC straight away to renegotiate. A missed installment with no communication gives HMRC grounds to cancel the whole arrangement and restart enforcement.

Challenging the Bill or a Penalty

Not every HMRC demand is right. You normally have 30 days from the date of the penalty notice to appeal.⁷ Missing that window doesn’t shut the door permanently, but you’ll need to explain the delay, and HMRC grows less sympathetic the longer you wait.

HMRC accepts what it calls a “reasonable excuse” for late payment or filing, and the bar is higher than most people expect. Examples that may qualify: a serious illness, a close relative’s death shortly before the deadline, a fire or flood that destroyed records, or an unexpected hospital stay. What won’t work: not having the money, finding the online system confusing, not receiving a reminder, or relying on someone else who didn’t follow through. HMRC also expects you to have filed or paid as soon as you were able. A reasonable excuse for the initial delay doesn’t cover months of continued inaction.⁸

If your appeal doesn’t resolve things, ask for a statutory review. A different HMRC officer, one not involved in the original decision, looks at the case from scratch. Reviews normally take about 45 days, and the officer can uphold, change, or cancel the decision.⁹ If you disagree with the review outcome, you can take the matter to the tax tribunal within 30 days of the review letter. For smaller penalty disputes, the tribunal is relatively accessible without a solicitor; professional advice is worth considering for larger amounts.

What HMRC Can Do If You Don’t Pay

HMRC has an unusually wide range of enforcement powers compared to ordinary creditors, and some don’t need a court order. The approach depends on the tax type, the amount, and your history, so this is the general escalation rather than a fixed sequence.

Adjusting Your Tax Code

If you’re employed or receive a pension, HMRC can collect a debt by adjusting your PAYE tax code. Sometimes the first sign is a drop in take-home pay and an unfamiliar code on the payslip. A code starting with “K” means your deductions and unpaid tax exceed your Personal Allowance, so your employer collects the extra through your wages.¹⁰

There are limits. The maximum HMRC can code out in a year scales with earnings, from £3,000 for people earning under £30,000 up to £17,000 for those earning £90,000 or more.¹¹ Whatever the annual cap, an employer using a K code can never deduct more than half your pre-tax pay in any pay period.¹⁰ Different rules apply to Self Assessment balancing payments and PAYE underpayments. If your code changes and you don’t know why, check your Personal Tax Account. Ignoring it just means the deductions carry on.

Taking Money From Your Bank Account

Under the Finance (No.2) Act 2015, HMRC can take money directly from your bank or building society without a court order. The debt has to be at least £1,000, and HMRC has to leave a minimum of £5,000 across all your accounts after the deduction.¹² HMRC must first have tried to contact you multiple times and given you the chance to pay or arrange a plan. In practice this is reserved for people who have consistently ignored correspondence, but it is a real power.

Sending Enforcement Agents

HMRC can send enforcement agents, still often called bailiffs, to your home or business to seize items for sale. You get a notice of enforcement with at least seven days to pay or arrange a plan. Ignore that and agents can attend and list items for removal.

Statutory fees are added to the bill at each stage: £75 at compliance, £235 plus 7.5% of any amount over £1,500 at enforcement, and £110 plus 7.5% at the sale stage.¹³ On a £10,000 debt that reaches the sale stage, the fees alone add over £1,690.

Agents can’t take everything. They must leave essential household items: beds and bedding for everyone in the home, a table and chairs, a cooker or microwave, a fridge, a washing machine, a phone, and any medicine or medical equipment. Tools and computer equipment needed for work are protected up to a combined value of £1,350. Vehicles displaying a valid Blue Badge or provided through Motability are exempt. Agents cannot seize anything belonging to someone else in the household, including your children’s possessions.

Charging Orders Against Your Home

If HMRC gets a County Court Judgment and you still don’t pay, it can apply for a charging order against property you own in England or Wales.¹⁴ The order doesn’t force an immediate sale, but it secures the debt against the property. When you eventually sell, HMRC is paid from the proceeds after the mortgage lender and before you see any equity.

HMRC only pursues a charging order where there’s a realistic prospect that, after the mortgage, enough equity would remain to cover most of the debt. For judgments entered from October 2012 onwards, HMRC can apply for a charging order even while you’re keeping up with installment payments; it’s used to protect the debt, not just to punish missed payments.¹⁴

Attachment of Earnings

Where HMRC holds a judgment debt and you’re employed or receive an occupational pension, it can ask the court for an attachment of earnings order. Your employer is then legally required to deduct a set amount from each pay period and send it to the court.¹⁵ The court sets a protected earnings rate, a floor below which your income cannot be reduced, so basic living costs are covered. Unlike a tax code adjustment, this route goes through court and your employer receives a formal order.

Bankruptcy and Winding Up

For debts of £5,000 or more, HMRC can serve a statutory demand requiring payment within 21 days.¹⁶ If you don’t pay or reach an agreement in that window, HMRC can petition to make you bankrupt.¹⁷ Bankruptcy means assets are sold to pay creditors, your credit rating is severely damaged for years, and certain professional roles become closed to you.

For companies, the equivalent is a winding-up petition, and HMRC is one of the most active users of the process in the UK. If a winding-up order is made, the company stops trading, a liquidator is appointed, and directors lose control. Court fees and petition deposits run into thousands of pounds, all added to the company’s liabilities.

What to Do Right Now

Sign in to your Personal Tax Account and confirm the figures before doing anything else.⁵ If the amount is right and you can’t pay in full, set up a Time to Pay arrangement as soon as possible, using the online tool if your Self Assessment debt is under £30,000.⁶ If you believe the amount or a penalty is wrong, appeal within 30 days.⁷ Silence is the worst option. HMRC’s powers are broad, and most of them are triggered by inaction rather than by inability to pay.

1
GOV.UK. HMRC Interest Rates for Late and Early Payments
2
GOV.UK. Self Assessment Tax Returns – Penalties
3
GOV.UK. If Your Tax Calculation Letter (P800) Says You Owe Tax
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GOV.UK. Check Your Simple Assessment Tax Bill
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GOV.UK. Personal Tax Account: Sign In or Set Up
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GOV.UK. Pay Your Tax Bill in Instalments
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GOV.UK. Disagree With a Tax Decision or Penalty
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GOV.UK. Disagree With a Tax Decision or Penalty – Reasonable Excuses
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GOV.UK. Disagree With a Tax Decision or Penalty – Get a Review
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GOV.UK. If You Have a K in Your Tax Code
11
HM Revenue & Customs. PAYE Manual – Coding: Adjustments to Collect Tax: Coding Out Outstanding Debts
12
House of Commons Library. Direct Recovery of Tax Debts
13
The National Archives. The Taking Control of Goods (Fees) Regulations 2014 – Schedule
14
HM Revenue & Customs. County Court Proceedings – Charging Orders – When to Consider
15
HM Revenue & Customs. Enforcement by Attachment of Earnings Order (AEO)
16
GOV.UK. How to Serve a Statutory Demand
17
GOV.UK. Apply to Bankrupt Someone Who Owes You Money – Prove You’re Owed 5000 or More