A January tax bill bigger than the money in the account is common, especially in the first year of trading. What you do in the next few weeks decides how much it costs. These are HMRC's own rules for paying in instalments, with the penalties and interest worked through.
Written and reviewed by James Whitfield · Last reviewed 22 October 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
File your return by 31 January anyway: that avoids the £100 late filing penalty and the daily penalties after it.1 Then set up a payment plan. You can do it online if you owe £30,000 or less, are up to date with your returns, and have no other tax debts or HMRC payment plans; otherwise call HMRC on 0300 123 1813.2 HMRC's manual says no late payment penalty is charged if you agree an acceptable plan within 30 days of the due date.3 Interest still runs at 7.75% a year.4
Related: Your 2025/26 return: what's due on 31 January 2027 · Payments on account and SA303 · Tax set-aside calculator
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Filing and paying are separate obligations with separate penalties. A return filed one day late costs £100 even if you have paid; after three months it is £10 a day up to £900, then 5% of the tax due or £300 at six and twelve months.1 Filing on time removes all of those, and the online payment plan service needs your returns to be up to date.2
HMRC calls this Time to Pay. You can set it up online through your HMRC account if you owe £30,000 or less, are up to date with your tax returns, have no other tax debts and have no other HMRC payment plans.2 HMRC checks that the plan is affordable for you; if a plan cannot be agreed, it asks for the amount in full.6
If you owe more than £30,000, or do not meet the other conditions, call HMRC on 0300 123 1813 (+44 2890 538 192 from abroad), Monday to Friday 8am to 6pm.2 Have your UTR, your bank details and a realistic figure for what you can pay each month.
HMRC's Self Assessment Manual says no late payment penalties are imposed if you make proposals that lead to an acceptable Time to Pay arrangement on or before 30 days after the due date.3 For a 31 January bill, that means asking by early March. A plan agreed later can still avoid the six-month and twelve-month penalties, but not the first 5%.3 Keep to the plan: if you break it, the penalty can be charged after all.
Sam owes £6,000 on 31 January 2027 (a balancing payment plus the first payment on account) and can pay £1,000 a month from the end of February. With a plan agreed in February there is no late payment penalty, only interest at 7.75% a year on the balance as it falls.34
| With a plan agreed in February: late payment penalty | £0.00 |
| Interest on the falling balance: average about £3,500 × 7.75% × 6/12 | ≈ £136 |
| Without a plan: 5% of £6,000 still unpaid at day 30 (plus the same interest) | £300.00 |
The 5% late payment penalties apply to balancing payments, not to payments on account.5 If you missed the 31 July payment on account, you are charged interest from the due date until it is paid,9 and if it is still unpaid on 31 January it becomes part of the balancing payment that the penalties are worked out on.5
If your profit has fallen, you may not need to pay the full amount at all. You can ask HMRC to reduce your payments on account online or with form SA303. If you reduce them too far and your final bill is higher, you pay interest on the difference, so use a realistic estimate.7
Once your account is up to date, you can pay towards your next bill weekly or monthly by Direct Debit with a Budget Payment Plan, set up in your HMRC online account, and pause it for up to six months if you need to.8 Setting aside a fixed share of every payment you receive into a separate account does the same job; the set-aside calculator shows the monthly figure for your profit.
Interest starts from 1 February, and a 5% late payment penalty is added to tax still unpaid 30 days after the deadline, with further 5% penalties at six and twelve months. File the return on time anyway and set up a payment plan with HMRC: an acceptable plan agreed within 30 days of the due date avoids the late payment penalties, though interest still applies.
Yes, if you owe £30,000 or less, are up to date with your tax returns, have no other tax debts and have no other HMRC payment plans. Otherwise call HMRC on 0300 123 1813, Monday to Friday 8am to 6pm.
Yes. Interest is charged on tax paid after the due date at HMRC's late payment rate, which is Bank of England base rate plus 4%: 7.75% a year from 9 January 2026.
There is no 5% late payment penalty on a payment on account, but interest runs from the day after it was due. If it is still unpaid on 31 January, it is included in the balancing payment, and the penalties are then worked out on that.
No. Filing late adds a £100 penalty straight away and more after three months, and does not delay the payment deadline. File on time and deal with the payment separately.
0300 123 1813, or +44 2890 538 192 from outside the UK. Lines are open Monday to Friday, 8am to 6pm, and closed at weekends and on bank holidays.
The rates, thresholds and rules in this guide are drawn from the official HMRC and GOV.UK sources below, using the confirmed 2026/27 figures. Each link opens the relevant official page in a new tab.
The sole trader tax calculator turns this guidance into a concrete monthly take-home and tax reserve estimate, based on 2026/27 HMRC rates. Enter taxable profit — not turnover.