Can’t Afford Your January Tax Bill? What Should You Do Now?
A Self Assessment bill can become a serious cash-flow problem if you leave it until January to deal with.
You might know roughly what you owe. You might even have filed your return.
But what happens if you look at the figures and realise:
“I’m not going to have enough money to pay HMRC by 31 January.”
Ignoring the problem is usually the worst option.
HMRC provides routes for taxpayers who cannot pay their tax bill on time, including payment arrangements in eligible circumstances. The earlier you understand the shortfall, the more time you have to deal with it. GOV.UK
First: work out exactly how much you owe
Don’t plan around a rough estimate if you can avoid it.
For Self Assessment, the amount due on 31 January can include:
- Your balancing payment for the previous tax year
- Your first payment on account towards the next tax year
The second payment on account is normally due on 31 July. GOV.UK
That means your January payment can be significantly larger than the tax liability you initially had in mind.
Start by checking your Self Assessment account and establishing exactly what HMRC expects you to pay.
Don’t confuse a cash-flow problem with an incorrect tax bill
There are two different issues.
Problem one: the tax bill is wrong.
Perhaps income has been entered incorrectly, an allowable expense has been missed or some other information on the return needs correcting.
That needs investigating.
Problem two: the bill is correct, but you don’t have the cash to pay it.
That is a payment problem.
The solution depends on which situation you’re actually facing.
Work out the shortfall
Suppose your January payment is:
£12,000
You currently have:
£7,500
available for the bill.
Your shortfall is therefore:
£4,500
That’s much more useful than simply thinking:
“I can’t afford my tax.”
You now have a specific figure to plan around.
If January is still several months away, you can calculate how much additional cash needs to be generated or reserved each month.
Can you make payments before January?
Yes.
HMRC allows taxpayers to make more than one payment towards their Self Assessment bill before the deadline. GOV.UK
That means you don’t necessarily have to wait until 31 January and make one enormous payment.
If you already know the bill is coming, you could start paying towards it earlier.
For example, if you expect to owe:
£8,000
and have four months remaining, you might choose to make a series of payments before the deadline rather than holding everything until January.
The important point is that the required amount still needs to be paid by the applicable deadline unless you have agreed another arrangement with HMRC. GOV.UK
What is an HMRC Time to Pay arrangement?
If you cannot pay an overdue tax bill in full, HMRC says you may be able to establish a payment plan to repay it through monthly instalments. These arrangements are commonly known as Time to Pay. GOV.UK
This doesn’t make the tax disappear.
Instead, it can spread repayment over an agreed period.
HMRC will consider your circumstances when determining what is appropriate.
What information might HMRC need?
If you’re arranging a payment plan, HMRC says you should be prepared with information including:
- The relevant tax reference, such as your UTR
- UK bank account details
- Details of your income
- Details of your spending
If an arrangement cannot be established online, HMRC may also ask about what you can afford to repay each month, other tax liabilities and any savings or investments you hold. GOV.UK
This is another reason to understand your finances before trying to arrange repayment.
HMRC may expect you to use available savings
A payment arrangement isn’t simply a way of keeping cash elsewhere while delaying HMRC.
HMRC’s current guidance says that if you have savings or assets, it will expect you to use them to reduce your tax debt as much as possible. GOV.UK
Your wider financial circumstances therefore matter.
Can you arrange a payment plan online?
Potentially.
HMRC provides an online service that checks whether you’re eligible to establish a payment plan online.
If you cannot use the online service, you may need to contact HMRC to discuss your circumstances. GOV.UK
Don’t assume an arrangement has been accepted until it has actually been set up.
What happens if you simply don’t pay?
The bill does not disappear after 31 January.
HMRC states that if you pay Self Assessment after the deadline, interest will be charged and a penalty may also apply. GOV.UK
So if you know before January that you have a problem, doing nothing generally allows the position to become more expensive.
Could your payments on account be too high?
Potentially.
This is worth checking if your income has fallen.
Payments on account are based on the previous year’s position. If your current-year liability is genuinely expected to be lower, you may be able to claim to reduce them.
But this needs to be based on a reasonable estimate of the lower liability.
Reducing payments on account simply because you don’t have enough cash is not the same thing as having a genuine lower tax liability.
And if you reduce them too far, interest can arise on the resulting underpayment.
Could HMRC collect the bill through your PAYE tax code?
In some circumstances, yes.
HMRC currently says a Self Assessment bill can be collected through PAYE where all the relevant conditions are satisfied, including:
- You owe less than £3,000
- You already pay tax through PAYE
- You submitted a paper return by 31 October or an online return by 30 December
HMRC also applies additional restrictions, including whether there is sufficient PAYE income from which to collect the amount. GOV.UK
If you’re eligible, the tax is collected through deductions from salary or pension rather than requiring the whole amount as a separate January payment. GOV.UK
The 30 December deadline matters
The normal online Self Assessment filing deadline is 31 January 2027 for the 2025/26 return.
But if you want HMRC to collect an eligible Self Assessment bill through your PAYE tax code, the online return must be submitted by 30 December 2026. GOV.UK
That’s a good example of why leaving your tax return until January can reduce your options.
What if January is still months away?
That’s actually good news.
You have time.
Suppose it’s October and you discover:
Expected January bill: £15,000
Tax reserve: £9,000
Shortfall: £6,000
With roughly three months remaining, you have a clear target.
You can now review:
- Personal drawings
- Discretionary business expenditure
- Outstanding customer invoices
- Upcoming cash receipts
- Existing tax reserves
- Other upcoming liabilities
The objective isn’t simply to “find £6,000”.
It’s to build a realistic cash-flow plan between now and the deadline.
Don’t damage the business just to make the tax payment
This requires judgement.
Paying HMRC matters.
But emptying the business account without considering payroll, VAT, suppliers and essential operating costs can create another financial problem immediately afterwards.
This is where a short-term cash-flow forecast becomes useful.
Map out what is expected to enter and leave the business over the next few months.
That gives you a much better picture of what can realistically be allocated towards the tax liability.
What is a Budget Payment Plan?
This is different from Time to Pay.
If you’re up to date with your previous Self Assessment payments, HMRC allows eligible taxpayers to set up a Budget Payment Plan.
You choose how much to pay by weekly or monthly Direct Debit towards your next Self Assessment bill. GOV.UK
This can be useful for preventing the same problem next year.
If the amount accumulated through the plan doesn’t cover the eventual bill, you’ll still need to pay the remaining balance. GOV.UK
Filing early gives you more options
There is a major practical difference between discovering a £10,000 tax bill in:
October
and discovering it on:
30 January
The amount might be identical.
The available planning time isn’t.
HMRC itself highlights that filing earlier lets taxpayers find out what they owe, budget for it and potentially establish a payment plan if they do not think they can pay on time. GOV.UK
That’s one of the strongest reasons not to treat 31 January as the date to start thinking about Self Assessment.
A practical October action plan
If you already think January could be difficult, do the following now:
Confirm the liability.
Get the return and underlying records as accurate as possible.
Check payments on account.
Make sure they’re still appropriate based on the expected current-year position.
Calculate the cash shortfall.
Don’t work with vague estimates.
Build a cash-flow forecast.
Look at what should enter and leave your accounts before January.
Start reserving money immediately.
Even partial progress reduces the eventual shortfall.
Consider paying HMRC early in instalments.
You can make multiple payments before the deadline. GOV.UK
If you still cannot pay, investigate HMRC’s payment-plan options.
Don’t simply miss the deadline and hope to sort it out afterwards. GOV.UK
Frequently Asked Questions
What happens if I can’t afford my Self Assessment bill?
HMRC says you may be able to arrange a payment plan if you cannot pay your tax bill on time. Your circumstances and ability to pay will be relevant. GOV.UK
Can I pay my January tax bill in instalments before the deadline?
Yes. HMRC allows you to make multiple payments towards your Self Assessment bill before it becomes due. GOV.UK
Will HMRC charge interest if I pay late?
Yes. HMRC states that interest is charged when Self Assessment is paid after the payment deadline, and penalties may also apply. GOV.UK
Can HMRC take my Self Assessment bill through my salary?
Potentially, if you satisfy HMRC’s conditions for collection through PAYE. Among other requirements, the bill must currently be less than £3,000 and the relevant return must be submitted within the required timeframe. GOV.UK
Should I reduce my payments on account if I can’t afford them?
Not simply because you don’t have the cash. A reduction is appropriate where the expected underlying liability is lower. A cash-flow problem and an excessive payment on account are two different issues.
Should I wait until January before contacting HMRC?
If you already know there’s likely to be a problem, there is little benefit in ignoring it. Work out the liability and shortfall as early as possible so you understand what options may be available.
Final thoughts
Finding out that you can’t afford your January tax bill isn’t something to ignore.
The important thing is to establish:
What do you actually owe?
How much cash will you have?
What is the genuine shortfall?
Can that shortfall be closed before the deadline?
And if it can’t:
What arrangement may be available through HMRC?
The earlier those questions are answered, the more manageable the situation usually becomes.
At Merranti Accounting, we can help you understand your Self Assessment position, review payments on account and plan for upcoming tax liabilities before they become a January cash-flow crisis.
Written by Jack Smith MAAT
Senior Client Manager, Merranti Accounting
Jack is AAT-qualified and has more than 12 years’ experience supporting SMEs and owner-managed businesses. His work includes accounts, tax planning, management reporting, cash-flow forecasting and wider business advisory support.
