Unpaid Tax Bills and Bankruptcy: What the Self-Employed Should Know

Tax Queen

Tax Expert @ Pie

5 min read

What You Need to Know

On 13 October 2026, a judge dismissed a bankruptcy petition that HMRC had brought against former footballer Jamie Carragher, because the unpaid tax bill had been paid. The court wasn't told how much was owed or what kind of tax it was, so the rules for your own return haven't changed.

The case does show how far HMRC can go when a tax debt stays unpaid. If you're self-employed, work out now what you're likely to owe for 2025-26. If you can't pay it all, talk to HMRC early.

Filing on time matters too, even if paying is the hard part. HMRC makes this point every year, as our article on HMRC's call to file before the 31 January Self Assessment deadline explains.

How an Unpaid Tax Bill Can End Up in Court

GOV.UK guidance says anyone you owe money to, including HMRC, can ask a court to make you bankrupt if you owe £5,000 or more and don't pay. They usually have to try other routes first, such as a statutory demand (a formal written demand for payment).

The court sets a hearing at least 14 days after you receive the petition. At the hearing it can make you bankrupt, postpone the hearing or dismiss the petition. In this case it dismissed the petition because the debt had been paid.

Even before the hearing, your name goes on the Land Charges register, which mortgage lenders can search. That means lenders can see a petition even if it's later dismissed.

These rules apply in England and Wales. Scotland and Northern Ireland have their own processes, so check the guidance for where you live.

What This Means for Your Self Assessment

For most sole traders, freelancers and landlords, a large tax debt doesn't appear overnight. It usually builds up after a strong year, when a bigger bill arrives at the same time as your first Self Assessment payments on account.

Payments on account are advance payments towards next year's bill, and each one is usually half of the tax you owed for the year just gone. HMRC says you have to make them unless last year's bill was under £1,000, or more than 80% of your tax was already collected outside Self Assessment (for example through your tax code).

How the January Bill Can Double Up

Your balancing payment (the top-up for the year just ended) is due by midnight on 31 January after that tax year closes. For 2025-26, that's 31 January 2027, along with your first payment on account for 2026-27. The second payment on account is due on 31 July 2027.

The online return for 2025-26 is normally due on the same January date [Editor Note: Unverified figure - check against HMRC guidance]. Plan to file well before then so you know your figure early.

Here's how the bill can add up. Say your 2025-26 bill is £3,000 and you've already made £1,800 in payments on account. You'd owe a £1,200 balancing payment plus a £1,500 first payment on account, so £2,700 in January.

If it's your first year in Self Assessment, the jump is bigger. You'd pay the full £3,000 plus the £1,500 advance payment, a total of £4,500 by the January deadline.

Can You Lower Your Payments on Account

If you know your profit has fallen, you can ask HMRC to reduce your payments on account, either online or by post using form SA303. You'll need to give an estimate of what you expect to earn.

Make your estimate realistic. If you reduce your payments and your final bill turns out higher, HMRC charges interest on the difference.

If You Can't Pay Your Tax Bill

Ignoring the bill is the worst thing you can do. HMRC says that if you can't pay in full, you may be able to set up a payment plan and pay in instalments.

HMRC will check whether the plan is affordable for you. If you can't agree one, it will ask you to pay the full amount, so it's better to get in touch early with a clear picture of your income and outgoings.

Keep filing on time even if paying is the problem. A late return adds penalties on top of the tax you already owe.

Missed Deadlines Make Your Bill Bigger

Filing or paying late leads to penalties and interest, and the longer you leave it, the more you'll owe. If you've already missed a deadline, our guide on what to do after missing the Self Assessment deadline explains what to do next.

Good Records Make Every Option Easier

Whether you're planning ahead or agreeing a plan with HMRC, it all depends on knowing your numbers. That means recording income as it comes in and keeping receipts for allowable expenses (business costs you can take off your income before your tax is worked out).

Every allowable expense you claim lowers your taxable profit, and so your bill. If you miss some, you pay more than you need to, which is the last thing you want when money is tight.

Landlords should keep rent records, letting agent statements and repair bills together in the same way. Invoices, receipts and bank statements are much easier to gather through the year than in a January panic.

Staying Ahead of Your Next Tax Bill

Unpaid tax doesn't go away, but acting early gives you more options, from putting money aside to agreeing a plan with HMRC before a demand letter arrives. The 2025-26 tax year is now over, so October is a good time to work out what you'll owe in January.

Pie Tax is self-assessment software for sole traders, landlords and freelancers. It pulls in your income and sorts your allowable expenses, so you can see your likely 2025-26 bill, including any payments on account, well before it becomes a problem.

If you'd like to know that figure this month rather than in late January, Get started today for free.