What to do if you are behind on your taxes

I have received a penalty for not filing a tax return- what should I do?

The online filing deadline is the 31 January after the end of the tax year. Penalties are automatically applied if you do not meet the deadline. The penalties can be quite harsh and are applied even if you have no tax or National Insurance contributions (NIC) to pay. If you have a ‘reasonable excuse’ for not filing your tax return, you can appeal the penalties.

A reasonable excuse might include where you did not understand the system and needed help from, for example, TaxAid or from HMRC. In this case, you are usually expected to have taken reasonable steps to get help with your tax affairs. How difficult your tax affairs are and why, in your particular circumstances, you have found them too difficult to deal with will also be relevant when explaining why you think you have a reasonable excuse.

If you have received a penalty notice from HMRC for not filing a tax return – do not ignore it. The amount of penalty will increase if you do not sort this out with HMRC. It may be the case that you can and want to appeal the penalty, in which case there are time limits to do so. For more information, see this page of our guidance.

If you did not file your tax return because you did not consider it was required (for example, because you are no longer self-employed), then you need to let HMRC know. HMRC may be able to withdraw the tax return, and if they do that, you will no longer need to file it and any late filing penalties will be set aside.

If you did need to submit the tax return but you are unable to do so and cannot afford tax advice, then you should contact the tax charity TaxAid to see if they can help you get your tax affairs in order.

I can’t pay my tax bill – what should I do?

If you have to complete a tax return, you usually have to send it in and pay any taxes that you owe to HMRC by 31 January following the end of the tax year in question. (When we talk about tax on this page, we also include any NIC which may be due.)

There are a number of reasons why you may not be able to pay what you owe, for example, if you don’t save up enough for your tax bill at the end of the year. You may also get caught out by ‘payments on account’. ‘Payments on account’ is when, as well paying your tax bill for the tax year just ended, you may have to pay some tax and NIC in advance for the current tax year. Some newly self-employed people fail to factor in these ‘payments on account’ when budgeting for their first tax bill and are shocked when they owe more money than expected.

The situation may not be as bad as you think if you can’t pay your tax bill, but you should act quickly. For example, by calling HMRC and explaining your circumstances or asking TaxAid to help you (see below). If you have problems paying your tax bill, you can read more about this on our website. 

What if I haven’t filled in a tax return?

For a start, not everyone who is self-employed needs to send HMRC a tax return. This might include where you are self-employed but your total income from gig work does not exceed £1,000 and you have no other trading or miscellaneous income. In this situation the trading allowance can cover all of this income meaning there is no tax to pay and nothing to report to HMRC or do apart from keeping track of your income to make sure it is £1,000 or below. If your income is more than £1,000 you can still benefit from the trading allowance, as we explain in our guidance.

Even if you do need to do a tax return, you might not need to do one yet. The rules say that if you have self-employment income which you need to declare for tax purposes, you may need to notify HMRC by 5 October following the tax year in which the new self-employment began. The tax return and any payment required is then due by the following 31 January. 

For example

Flavia started working for Uber on a self-employed basis in May 2022. Flavia should tell HMRC about her new income by 5 October 2023. Her Self Assessment tax return and any tax owed will be due by 31 January 2024. Even if Flavia misses the 5 October deadline she should still notify HMRC as soon as she can. This is because as long as any tax and NIC due is paid on time (that is, by the 31 January 2024), there should be no ramifications for missing the earlier notification deadline.

So, if, like Flavia, your gig work only started recently, you might not actually be behind on anything to do with your taxes just yet.

If you have not filed any tax returns when you should have done, then you should seek advice on the best way to bring your tax affairs up to date as soon as possible. This may not be as hard as you think, as we explain below.

Bringing your tax affairs up to date by filing tax returns for past years does not necessarily mean you will have a large tax bill to pay as it depends on the amount of profit you make from your work.

However if you think you do have tax to pay and you can’t afford to pay it all at once then HMRC should allow you to pay it in affordable instalments. This is known as a ‘time to pay’ arrangement. So do not delay filing outstanding tax returns if you don’t think you can pay the tax bill that could be due. This is only likely to make matters worse. 

How far back will I have to go?

There are only so many years that HMRC can ask you to pay back-taxes for. You have to self-assess your behaviour to work out the number of years that apply to you (this will also help you to work out any penalty you have to pay if there are some taxes that you owe to HMRC).

So, for example, if you completed a tax return, but did not include the gig economy income in it, the rules are basically as follows:

• If you took care to make sure your tax return was correct but still didn’t pay enough tax – the time limit is 4 years from the end of the tax year concerned

• If you did not pay enough tax because you were careless, the time limit is 6 years

• If you deliberately misled HMRC about this income, HMRC can ask for this tax going back 20 years.

There are similar rules if you failed to notify HMRC of the need to complete a tax return to declare your gig economy income in the first place. You can find a useful table summarising HMRC’s assessing time limits in HMRC’s Compliance Manual on GOV.UK. You can also find information about the various behaviours, e.g. carelessness, in the manual. If you are in any doubt as to which category your behaviour best fits, you should seek some professional advice (we explain you how to do this below).  

Will I get penalties for ‘failing to notify’?

There are penalties for failing to notify HMRC of a new source of income by 5 October following the end of the tax year, which are based on the tax (and Class 2/4 NIC) that could potentially be lost as a result of the failure to notify on time (‘potential lost revenue’). We explain exactly how ‘failure to notify’ penalties are calculated in our guidance. 

Although these sound scary – don’t panic. They will not necessarily be relevant – read our guidance here on what to do if you miss the deadline to register for your taxes with HMRC.

Even if they are relevant, ask yourself if you have a ‘reasonable excuse’ for having not done what you should have. If circumstances stopped you meeting your obligations, then you may have one and you can and should appeal the penalty.

HMRC have written to me – what should I do?

You should be aware that HMRC receive information from third parties about income that people receive. This can be used to identify people who need to bring their tax affairs up to date. HMRC have recently written to a number of people who have received some income from online platforms such as Amazon, eBay, Etsy and Wayfair, who they think may need to take action.

To understand more about what to do if you get a letter, see our article.  

How can TaxAid help me sort out my taxes?

If you are on a low income, the tax charity TaxAid are familiar with these situations and can offer free, independent advice and assistance on the matter.

This can include:

• Talking to HMRC on your behalf

• Helping you to: ​

  • Work out whether you needed to file a tax return in the first place for any particular year

  • Support you to register for a tax return if you need to and have not already

  • Help you understand what income and expenses to declare

  • Complete any outstanding tax returns

  • Decide on the best course of action to take to deal with any old tax years, for instance by simply writing a letter or using the disclosure facility.

  • Appeal against any penalties charged by HMRC if you had a reasonable excuse for not having done something that you should have done.

  • Help you understand how to negotiate ‘time to pay’ arrangements taking account of your individual health and financial circumstances if you have a tax payment which you cannot afford to pay

A case study looking at TaxAid’s help in practice can be found on their website.

Claiming benefits if you are behind on your taxes

Some gig workers, especially those delivering goods or takeaways may be struggling to earn enough money due to a drop in demand at the same time as an oversupply of workers. If options for other work are limited, benefits can be a lifeline. But what if you are behind on your taxes and haven’t paid any National Insurance? Does this mean you can’t claim benefits?

The good news is that although you will need to sort out your taxes in the longer term, if your work has reduced or stopped, you might still be able to claim some welfare support from the benefits system.

What types of benefits are there?

There are two main types of benefit – means tested and non-means tested.

Some non-means tested benefits are ‘contributory’ benefits, that is benefits which are only payable if a person has paid enough NIC. Therefore, if your tax affairs are not up to date, you may not have paid enough NICs to receive contributory benefits.

However, means tested benefits don't rely on whether you have paid any NIC. Instead, they usually look at how much income you have, any savings you have and calculate whether you are entitled to welfare support either in full or to top up your income to a certain level. They may also take into account your partner's circumstances if you are part of a couple. You can get means-tested benefits by themselves or sometimes as a top-up to contribution-based benefits.

The main means tested benefit you may be able to claim if you are no longer working and are struggling to find work is universal credit (UC). For those who have reached their state pension qualifying age, it is pension credit.

The Department for Work and Pensions (DWP) pays UC, and your claim is based on your current circumstances such as what support you need now, rather than what may have happened in the past, although the DWP may ask you about previous earnings to help them decide whether the benefit cap applies. There are some benefit calculators online that can give you a rough idea of how much you may be entitled to but the best way to check is to speak to a welfare rights adviser. See below.

Claims for UC are usually made online and you will need to prove your identity to make the claim, but there are lots of ways you can do this. You might need to explain what has been happening with your income when you are contacted by the DWP about your claim to the extent it is relevant to your work capability, claimant commitment and so on.

What if I can’t get UC?

If there is a problem with your application and this means you cannot pay for vital living costs, we provide some signposts to other organisations who can tell you about emergency help that may be available:

Rent: Make sure you contact your council or landlord as soon as possible to explain the situation. You could ask them if they’ll accept a late payment or whether they will let you pay them back over a few months under a payment plan.

If you're in rent arrears because of problems with your UC payments, you can contact a Shelter housing officer for advice, online, by phone or in person. (Note that this links to Shelter England, but there are similar facilities in Wales and Scotland and Northern Ireland.) There is also some good information about rent arrears and UC on the Citizens Advice website.

Foodbanks: Foodbanks, like those run by the Trussell Trust, are there to help people in an emergency and could be a practical alternative to taking out a hugely expensive payday loan for example, just to pay for some basic provisions.

You may need to be ‘referred’ to a foodbank by a professional such as a social worker, health visitor/GP or schools liaison officer. You can also be referred from your local children’s centres and organisations like Citizens Advice. Some local churches, charities and other community groups may run foodbanks where you do not need to be referred. An internet search or social media should provide you with some options.

Other: Shelter have an excellent article on where to get help if you are in a cash crisis and the British Red cross in association with Turn 2 Us has a website on what financial assistance may be available to you from advances, loans, grants and other sources. It also has a search facility to find grants and funds you can apply to, depending on your individual situation.

Where can I find more information or get help with benefits?

The benefits system is complicated. This page is intended to give you some basic information, but we always advise you to speak to a welfare rights adviser who can advise what you might be able to claim based on your exact circumstances.

You can use one of the following online calculators to get an idea about what benefits you may be entitled to:

• Entitled To

• Turn 2 Us

• Policy in Practice

Our Getting Help page gives details of organisations which can help with welfare rights advice, such as Citizens Advice and Advicelocal.