Submit return on time

If you cannot pay your tax by the due date, you should still submit your return on time, even though the estimated assessment issued by HMRC in the absence of a return could be lower than the actual tax owed. This is because any business that deliberately accepts and pays a low assessment might be subject to a maximum penalty of 30% on the difference.

It is also important that all past returns have been submitted because it will be a condition imposed by HMRC for any time-to-pay agreement you might request.

Part payments

If you are late with your payment, HMRC will charge interest on the outstanding balance; this cannot be avoided. Interest is not a penalty. It is commercial restitution for the fact that the money has been in your business bank account for longer than it should. However, your business will be subject to a 3% late payment penalty for any tax unpaid at the end of day 15 after the due date, with a further penalty of 3% on any tax still owed at the end of day 30. An annualised rate of 10% applies thereafter. These penalties can be averted with proactive steps.

The annual interest rate charged by HMRC on late payments was increased from 2.5% to 4% above the Bank of England base rate on 1 April 2025. It is therefore important that you pay as much tax as possible on time.

Payment support service

To avert a penalty charge, you must agree a time- to-pay arrangement with HMRC before the first penalty is triggered at the end of day 15. Call HMRC on 0300 200 3831 Monday to Friday 8am to 6pm, to do this.

However, in many cases you will be able to set up an online payment plan, which avoids the need to speak to an officer. This may be the case if:

• the total amount you owe is less than £100,000
• you have no outstanding returns or other payment plans or debts with HMRC; and
• you intend to pay off the debt within the next twelve months.

If you have missed the day 15 deadline, you should contact HMRC before the end of day 30 to avert the second 3% penalty.

Another condition of setting up an online plan is that your business must not be using either the cash accounting or annual accounting scheme, and you are also excluded if you are a large business that makes monthly payments on account.

Example. Mary submitted her September 2025 return with a liability of £50,000. She could only pay £10,000 by the due payment date of 7 November 2025. Mary must agree a time-to-pay deal with HMRC before 22 November 2025 to avoid a late payment penalty of £1,200, i.e. £40,000 x 3%. She will be charged interest from 8 November 2025.

Trap. If your outstanding debt exceeds £100,000, or you fail any of the other conditions needed for an online payment plan, you must be fully prepared for a phone call with an officer. For example, you must be able to provide details of your business income and spending and be clear about how much time you will need to pay the arrears.