If your business cannot pay a tax bill by its due date, ignoring it is the worst thing you can do. HMRC charges interest from day one and adds penalties for late payment. But there is a formal process for agreeing extra time, and it is more straightforward than many business owners expect.
A Time to Pay (TTP) arrangement lets you spread an overdue tax bill over a series of monthly instalments. HMRC agrees not to take enforcement action while you keep to the plan.
What taxes can be included
Time to Pay arrangements can cover most types of tax debt:
| Tax | Typical situation |
|---|---|
| Corporation Tax | Company cannot pay the full amount by the 9-month deadline |
| VAT | Quarterly VAT bill is higher than expected |
| PAYE and National Insurance | Employer struggling with payroll tax payments |
| Self Assessment | Sole trader or director with a personal tax bill |
| CIS deductions | Construction industry subcontractor deductions |
You can also include interest and penalties that have already been charged, though HMRC will continue to charge interest on the outstanding balance throughout the arrangement.
When to contact HMRC
Contact HMRC before the payment deadline if possible. If the deadline has already passed, contact them as soon as you can. The earlier you get in touch, the more likely HMRC is to agree favourable terms.
HMRC’s approach depends on several factors:
- Whether you have a history of paying on time
- The amount owed
- How long you need to pay
- Whether you have a realistic plan
If this is your first time asking and the amount is relatively modest, the process is usually straightforward. Repeated requests or very large balances receive more scrutiny.
The online payment plan (self-service)
For certain taxes, you can set up a payment plan online without speaking to anyone. The self-service option is available if:
- You owe £30,000 or less in Self Assessment tax
- You are within 60 days of the payment deadline
- You have no other payment plans or debts with HMRC
- Your tax returns are up to date
For Self Assessment debts, the online tool lets you choose how many monthly instalments you want (up to 12 months) and sets up a Direct Debit automatically.
| Online eligibility | Requirement |
|---|---|
| Maximum debt | £30,000 |
| Maximum repayment period | 12 months |
| Tax returns | All filed |
| Existing payment plans | None |
If you do not qualify for the online service, you need to call HMRC’s Payment Support Service.
Calling HMRC’s Payment Support Service
For debts above £30,000, Corporation Tax, VAT, PAYE or other taxes not covered by the online tool, call HMRC on 0300 200 3835. Lines are open Monday to Friday, 8am to 6pm.
What HMRC will ask you
Be prepared to discuss:
- Why you cannot pay on time (cash flow problems, a large unexpected expense, a customer not paying)
- How much you can afford to pay each month
- When you expect to be able to clear the debt
- Your business’s income and expenditure in outline
- Whether you have any assets that could be used to pay the debt
- Details of any other debts the business has
HMRC is not trying to catch you out. They want to establish whether your proposal is realistic and whether the business is viable. If you can demonstrate that you are a going concern with a temporary cash flow problem, they will usually work with you.
What to have ready before you call
- Your tax reference number (UTR, VAT number or PAYE reference)
- The exact amount you owe and for which period
- A summary of your monthly income and outgoings
- Your proposed payment schedule (how much per month and for how long)
- Bank details for setting up a Direct Debit
What HMRC will agree to
There are no fixed rules about how long a Time to Pay arrangement can last, but most are between 3 and 12 months. Longer periods (up to 24 months or more) are possible for larger debts, but HMRC will want more detail about your financial position.
| Debt size | Typical TTP length |
|---|---|
| Under £10,000 | 3-6 months |
| £10,000-£50,000 | 6-12 months |
| Over £50,000 | 12-24 months (with detailed financial review) |
HMRC may also ask for an initial lump sum payment before agreeing to instalments. This shows good faith and reduces the overall balance.
Interest during a TTP arrangement
HMRC continues to charge interest on the outstanding balance throughout the arrangement. The late payment interest rate is set at a fixed margin above the Bank of England base rate, so it moves whenever the base rate changes. HMRC publishes the current rate on GOV.UK.
This means the sooner you pay, the less interest accumulates. If you can afford to pay more than the agreed monthly amount, do so – HMRC will not penalise you for paying early.
What happens to penalties
If you set up a TTP arrangement before the payment deadline, HMRC will usually not charge late payment penalties at all. The arrangement itself is treated as evidence that you are taking reasonable steps to pay.
If you set one up after the deadline has passed, late payment penalties may still apply, but HMRC can sometimes reduce or suspend them if you keep to the agreed plan.
For Corporation Tax, the late payment interest runs from the day after the normal due date (9 months and 1 day after the accounting period end). There are no automatic fixed penalties for late payment of Corporation Tax, only interest – but HMRC can charge penalties if they believe the underpayment was deliberate.
Keeping to the arrangement
Once you have a TTP in place:
- Make every payment on time. A single missed payment can cause HMRC to cancel the arrangement and demand the full balance immediately.
- Contact HMRC immediately if your circumstances change and you cannot maintain the agreed schedule. They may renegotiate rather than cancel.
- Keep filing returns on time. The arrangement covers payment only. If you miss a VAT return filing deadline or a CT600 deadline while on a TTP, HMRC may treat the arrangement as broken.
- Pay new liabilities on time. If a new VAT quarter or Corporation Tax bill falls due while you are paying off an older debt, you are expected to pay the new one by its normal deadline.
What happens if HMRC refuses
HMRC may refuse a TTP arrangement if:
- The business does not appear to be viable
- You have broken previous arrangements
- The amount owed is disproportionate to your ability to pay
- You cannot demonstrate how you will pay future liabilities on time
If they refuse, you can:
- Negotiate – offer a larger initial payment or shorter repayment period
- Seek professional help – an accountant or tax adviser can sometimes present your case more effectively
- Consider insolvency options – if the business genuinely cannot pay its debts, formal insolvency proceedings may be more appropriate than a TTP
Alternatives to Time to Pay
| Option | When to consider |
|---|---|
| Business loan or overdraft | If the interest rate is lower than HMRC’s rate |
| Director’s loan | If you have personal savings to lend to the company temporarily |
| Invoice factoring | If you are waiting for large customer payments |
| Voluntary liquidation | If the company is insolvent and cannot trade its way out |
A TTP arrangement should be a short-term fix for a temporary problem, not a way to permanently defer tax obligations. If you find yourself needing one repeatedly, it is worth reviewing whether your business is generating enough cash to meet its ongoing commitments.
Tips for a smooth process
- Do not wait until enforcement action starts. Once HMRC instructs debt collectors or issues a winding-up petition, a TTP is much harder to arrange.
- Be honest about your financial position. HMRC’s staff deal with thousands of these requests and can tell when figures are unrealistic.
- Get a reference number for the arrangement and keep a record of what was agreed, including the amount, the number of instalments and the start date.
- Set up a Direct Debit so payments go out automatically. A missed payment because you forgot to transfer the money is an avoidable risk.