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Problems paying your tax

Many people who are unable to pay their tax on time or who find themselves owing tax will worry about the potential consequences, but the worst thing is to ignore the matter. The situation may not be as bad as you think. The golden rule always is to act quickly. If you do nothing at all, you increase the risk of action against you. The worst possible response is to ignore a letter or demand from HMRC which states that tax is due, as this will usually make things worse. Quite often, a quick response can reduce the size of the problem.

Self Assessment – late tax return penalty

About this notice

HMRC have sent you a late tax return notice of penalty assessment, sometimes called a ‘penalty notice’. You have received this notice from HMRC because they have asked you to complete a self assessment tax return and either they have received it late or have not yet received it at all. Do not ignore this notice, you must decide what action you now need to take.

See also: Self Assessment: appeal against penalties for late filing and late payment (Link takes you to HMRC website)

There are many reasons why you may need to fill in a tax return for HMRC. Although one of the most common reasons is when you are self employed, there are many other circumstances when it is also necessary. Use the tool on GOV.UK to see whether you need to file a tax return or check out the criteria for self assessment.

An example of a penalty notice letter can be found here. This includes notes about what the sections mean - please note that the links in the notes will take you to an external website.

We also include at the bottom of this page a Question and Answer decision tree on what to do when you receive a penalty notice. This has been provided to us from the Low Incomes Tax Reform Group.

What to do next

If the penalty is correct you will need to make arrangements to pay the amount on the penalty notice as soon as possible. If you are unable to pay, please read further advice here. You should also file the tax return if you have not already done so.

If you think you have grounds to make an appeal against the penalty, then follow this guidance.

Alternatively you can find out what to do next by answering the questions below.

If you are still unsure, give us a call on the phone number at the top of this screen.

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If you fall within the PAYE system

You will receive a P800 tax calculation if you owe more than £50 in tax providing it can be collected via your tax codes during the next tax year. If the tax can't be collected via your tax codes in the next year you will receive a PA 302 Simple Assessment instead. Whichever you receive, it is very important you check that the figures on the calculation are correct. If the figures are incorrect or the amount is less than £50, you should contact HMRC immediately giving them the correct information, the demand will be cancelled. If you agree with the P800 calculation, you should then try to understand why you did not pay enough tax before paying HMRC. This is important in working out whether you fall into one of the limited categories in which you can argue that you should not have to pay the bill.

It is possible that the underpayment has arisen due to your employer or pension payer not operating PAYE correctly. For example, they may not have applied the tax code that HMRC sent to them. If this is the case, HMRC should first seek the tax from the employer or pension payer, not from you. Alternatively, the underpayment might have arisen because HMRC itself failed to make timely use of information about you, which they had in their possession, this is covered by their concession ESC A19. In both cases you can ask HMRC to investigate and suspend collection until after they have done so. Also read the section 'How do I work out if I have paid enough tax?'

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How is the tax collected?

For amounts under £3,000 HMRC will send you a P800 tax calculation and normally collect the unpaid tax by reducing your PAYE tax code 'in year' and for the next tax year. For larger amounts or if is not possible to collect via a tax code they will send you a Simple Assessment called a PA302 showing what you owe and how to pay.

If you have received A PA302 payment in full is due by the 31st January after the end of the tax year. For example, tax due for a 2017/18 PA302 will be due by 31st January 2019. Interest and surcharges being added for late payments.

For years up to 2016/17, if you didn't respond, they would have issued a tax return for the year(s) concerned and you would then have fallen within the system of self- assessment (SA).   The full payment being due by 31st January after the end of the tax year, with penalties for late filing and interest and surcharges being added for late payments.

HMRC have removed the self assessment burden for people who are only in it because their state pension is higher their Personal allowance (£11,850 for 2018/19, £11,500 for 2017/18) and it is the only way the tax can be collected. HMRC will issue a simple assessment PA302 which you just need to check and pay by the usual deadlines. If you are concerned about what is happening contact either HMRC or Tax Help for Older People.


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If you are already in the self- assessment system

Contact HMRC as soon as possible and ideally before the tax becomes due. The amount demanded may be wrong. In many cases, you may not agree with the amount of tax shown on your Statement of Account, or demanded by HMRC’s Debt Management and Banking section or debt collector. There could be a simple error - such as failure to credit a payment you have made - which can be sorted out by a phone call to the telephone number shown on your Statement of Account.

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If you cannot afford to pay (PAYE or SA)

If the tax owed is correct, and you cannot afford to pay in one go, HMRC might agree to make a ‘Time to Pay’ arrangement with you, so that you can spread the payments and get yourself back up to date.

HMRC are able to spread payments over five years, but will usually ask you to show that you cannot afford to pay for time periods over three years. This means showing that you do not have enough money to pay what you owe, nor would you be able easily to access money to pay it. HMRC will still aim to collect the debt from you as quickly as is reasonably possible and any tax paid late will attract interest. But if you make a Time to Pay arrangement in advance of the tax becoming due and you stick to it, HMRC should ‘suspend’ (that is, not charge you) penalties for late payment. An instalment option may cost more in the long run.

Sometimes you may be contacted by a Debt Collection Agency on behalf of HMRC. You should check that the agency is genuine by comparing it to the list on the HMRC website or by calling HMRC. Debt Collection Agencies have broadly the same powers as HMRC to agree time to pay over up to 12 months. They will not however have any understanding of how the debt has arisen and any queries about the amount should be raised directly with HMRC. Debt Collection Agencies are authorised to contact taxpayers by phone and letter. They are not authorised to carry out personal visits. If the Debt Collection Agency fails to reach an agreement with a taxpayer they will refer the case back to HMRC to consider further enforcement action. If you feel you are being pressurised into paying more than you can afford, ask to have your case referred back to HMRC.

If your circumstances mean that you will never be able to pay the debt, for example, you are retired and on pension credit, HMRC may agree to write off the debt under hardship. If, however, if you own your property they will want paying eventually but might allow the debt to be paid from your estate when you die.

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Where can I find out more about getting help with my tax debt?

For PAYE and non-business debt you can contact us for more information on Employer and HMRC error. You can also visit the tax debt section of the TaxAid website. From there, you can also download their tax debt booklet in PDF format, which is a very helpful guide to the steps you should take.

(TaxAid is a separate charity providing free tax advice to working people on low incomes who cannot afford to pay a professional adviser and particularly those who are in tax debt crisis. Their service is also independent and confidential.)

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Understanding HMRC letters

Late tax return penalty notice

Dealing with problems