Can I Get a Business Loan With an HMRC Payment Plan?
Yes, it is possible to obtain a business loan while your company has an HMRC payment plan in place.
An HMRC Time to Pay arrangement doesn't automatically prevent a business from obtaining additional finance. Some lenders are prepared to consider applications where the arrangement is being maintained and the underlying business remains financially sound.
Other lenders have stricter credit policies and may decline applications involving outstanding tax liabilities.
The key questions are usually why the HMRC arrangement was needed, whether payments are being maintained, how much remains outstanding and whether the business can afford further borrowing alongside its existing commitments.
A company successfully repaying a historic tax liability can present a very different lending risk from one whose tax arrears are continuing to increase.
What is an HMRC Time to Pay arrangement?
An HMRC Time to Pay arrangement is an agreement that allows a business to repay an outstanding tax liability over an agreed period rather than paying the full amount immediately.
Businesses may be able to arrange instalment payments for liabilities such as:
Value Added Tax (VAT);
Corporation Tax;
PAYE;
National Insurance contributions; and
certain other taxes administered by HMRC.
The arrangement is agreed with HMRC based on the circumstances and financial position of the business.
For example, a company owing £24,000 in overdue VAT might agree to repay the liability over 12 months, subject to HMRC's agreement.
The business would then make the agreed instalments, together with any applicable interest, while continuing to meet its other obligations.
An HMRC payment arrangement is therefore a way of managing an existing liability rather than having the debt written off.
Does an HMRC payment plan automatically prevent business borrowing?
No.
There is no universal rule across the business lending market that prevents a company with a Time to Pay arrangement from obtaining finance.
Different lenders have different approaches.
Some treat any outstanding HMRC arrears as unacceptable.
Others distinguish between:
Unmanaged HMRC arrears: Tax remains overdue, with no agreed repayment arrangement or credible plan to resolve it.
A maintained Time to Pay arrangement: HMRC has agreed an instalment plan, the company is meeting its obligations and the outstanding balance is reducing.
The second situation may provide a lender with greater confidence that the tax liability is being managed.
However, having an agreed payment plan doesn't automatically mean the business can afford another loan.
The lender must still assess the company's current cash flow and existing financial commitments.
Why do business lenders consider HMRC payment plans?
A Time to Pay arrangement can provide two different types of information.
First, it indicates that the business previously experienced difficulty paying a tax liability when it fell due.
That may raise questions about cash flow, profitability or working-capital management.
Second, an agreed and maintained arrangement can demonstrate that the company has taken steps to resolve the problem.
A lender will therefore want to understand both the circumstances that led to the arrangement and how the company has managed it since.
The existence of the plan isn't necessarily the deciding factor.
The company's current financial position and subsequent conduct are often more important.
Does it matter why the HMRC payment plan was needed?
Yes.
The reason behind the arrangement can significantly influence a lending decision.
For example, a business may have required Time to Pay because:
a major customer paid substantially later than expected;
an unexpected tax assessment created a large liability;
trading was temporarily disrupted;
a significant bad debt affected cash flow;
the business expanded too quickly;
stock or other working-capital requirements increased; or
the company has an ongoing shortage of cash.
These circumstances aren't equivalent.
A temporary problem that has subsequently been resolved can present a different risk from a business whose normal operations don't generate enough cash to pay its taxes.
A lender may therefore ask what has changed since the arrangement was established.
How important is maintaining the HMRC payments?
Very important.
Where a lender is prepared to consider Time to Pay arrangements, a satisfactory repayment history is likely to be one of the strongest positive factors.
A company that has maintained six consecutive monthly instalments provides evidence that it can operate while reducing its historic tax liability.
Conversely, a company that has repeatedly missed instalments may indicate that the agreed repayment schedule is itself unaffordable.
A lender may want to establish:
when the arrangement started;
original amount owed;
agreed instalment;
current balance;
payments made to date;
whether any instalments have been missed; and
expected date of completion.
Being able to demonstrate that the arrangement is progressing as agreed can strengthen an application.
Does the remaining HMRC balance matter?
Yes.
The amount still outstanding is relevant, particularly when considered alongside the company's turnover, profitability, cash flow and existing borrowing.
For example, an established business generating £200,000 of monthly revenue might have a relatively modest remaining HMRC liability of £10,000.
Another company generating £30,000 of monthly revenue might have £75,000 outstanding.
Even if both businesses are maintaining their arrangements, the scale of the remaining liability can have very different implications.
A lender may therefore assess the outstanding HMRC balance relative to the company's financial capacity rather than looking at the amount alone.
Does the monthly HMRC repayment affect how much I can borrow?
Yes. This is one of the most important considerations.
An HMRC payment plan creates an ongoing cash-flow commitment.
A lender considering additional borrowing needs to assess the new loan alongside the payments the company is already required to make.
Consider a business with the following commitments:
Monthly commitment | Amount |
Existing business loans | £4,000 |
HMRC Time to Pay | £2,000 |
Proposed new loan | £3,000 |
Total monthly commitments | £9,000 |
The business needs to generate enough cash to support £9,000 in monthly finance and HMRC payments, in addition to paying its normal operating expenses and future tax liabilities.
This is why a maintained Time to Pay arrangement can be acceptable from a credit perspective while still limiting the amount of additional borrowing available.
What if the HMRC payment plan finishes soon?
That can be relevant.
A company with only two instalments remaining may be in a different position from one committed to substantial repayments for another two years.
For example, a business currently paying £3,000 per month to HMRC may shortly have that cash flow available for other purposes once the arrangement has been completed.
A lender may consider the remaining duration of the arrangement when assessing future affordability.
However, it must also consider whether the company can afford the proposed loan during any period when both sets of repayments overlap.
A future reduction in commitments doesn't eliminate an immediate cash-flow shortfall.
What if I have missed a payment under my HMRC arrangement?
A missed instalment is likely to make a new lending application more difficult.
The lender may want to understand:
why the payment was missed;
whether it was subsequently made;
whether HMRC has agreed to continue or revise the arrangement;
whether other payments have been maintained; and
whether the business remains financially stable.
One isolated issue that has been resolved may be easier to explain than repeated missed instalments.
HMRC may be willing to discuss changes to an arrangement where circumstances change, but businesses shouldn't assume that missed payments will have no consequences.
If the company is struggling to maintain its Time to Pay arrangement, it should contact HMRC promptly.
What if my business is accumulating new tax arrears?
This can be substantially more concerning than the original payment plan.
An HMRC arrangement is intended to help the business deal with an existing liability.
The company also needs to meet new tax obligations as they become due.
Suppose a business has agreed to repay £30,000 of historic VAT arrears.
It maintains the instalments under that agreement but then fails to pay its next VAT bill.
The underlying problem may not have been resolved.
A lender may therefore want to establish that the business is doing both:
Repaying its historic tax arrears
and
Meeting its current tax obligations.
If new liabilities are continually becoming overdue, the business may be operating with an underlying cash-flow deficit.
Can I get an unsecured business loan while on Time to Pay?
Potentially.
Some unsecured business lenders will consider applications involving maintained HMRC payment arrangements.
Because unsecured loans aren't supported by specific asset security, lenders are likely to examine the underlying business carefully.
They may focus on:
current turnover;
cash flow;
liquidity;
existing loan repayments;
remaining HMRC liability;
repayment history under the arrangement;
recent bank conduct;
trading history; and
the purpose of the proposed borrowing.
A strong established business with a modest, well-maintained arrangement may still present an acceptable credit risk to some lenders.
Substantial tax arrears combined with weak cash generation and repeated missed payments are likely to make an application more difficult.
Would a secured business loan be easier?
Possibly.
Providing suitable security can reduce the lender's potential loss if the borrower defaults.
That may allow some lenders to consider applications involving HMRC arrears that would fall outside their unsecured lending criteria.
However, security doesn't remove the need to demonstrate affordability.
A lender should still expect the business to repay its obligations from normal cash flow rather than relying on enforcement of the security.
The HMRC arrangement and all other financial commitments remain relevant.
Can I borrow money to pay off an HMRC Time to Pay arrangement?
Potentially, although the commercial rationale needs careful consideration.
A company might consider replacing an HMRC arrangement with a business loan to consolidate its liabilities or manage cash flow differently.
However, this isn't automatically beneficial.
The business should compare:
remaining HMRC balance;
existing monthly instalments;
remaining arrangement term;
HMRC interest and any applicable charges;
proposed loan repayments;
total cost of the new borrowing; and
any fees or personal guarantees required.
For example, replacing a manageable HMRC arrangement with an expensive short-term loan could increase financial pressure rather than reduce it.
Some lenders may also restrict borrowing intended primarily to repay outstanding tax liabilities or other existing creditors.
A new loan should improve the company's financial position rather than simply move a liability from HMRC to another lender.
Does an HMRC payment arrangement affect my business credit score?
Not necessarily directly.
An agreed HMRC payment arrangement isn't automatically the same as a CCJ or formal default reported by a commercial finance provider.
However, the underlying financial circumstances can still affect a lender's assessment.
HMRC arrears may become relevant through other information, including:
company accounts;
management accounts;
bank statements;
disclosure during the application;
public enforcement or insolvency records; and
other financial due diligence.
A lender can therefore consider an HMRC arrangement even where it isn't directly reflected in a headline business credit score.
Will a lender see the HMRC payments in my bank statements?
Potentially.
Regular HMRC payments may be visible when a lender reviews the company's banking information.
However, a payment to HMRC doesn't necessarily establish that a Time to Pay arrangement exists.
Businesses make routine tax payments throughout the year.
A lender may ask for clarification where the frequency, amount or pattern of payments suggests an instalment arrangement.
It may also ask the applicant directly whether any tax liabilities are overdue or subject to a payment plan.
Providing accurate information at the beginning can avoid unnecessary delays.
What documents might a lender request?
Where an applicant has an HMRC Time to Pay arrangement, a lender may want information beyond its usual financial documents.
This could include:
confirmation of the agreed arrangement;
original HMRC liability;
remaining balance;
agreed monthly instalment;
repayment history;
remaining term; and
evidence that payments are being maintained.
The lender may also review recent bank statements, accounts, management accounts and details of existing borrowing.
The precise requirements will depend on the lender and complexity of the application.
Will an HMRC payment plan increase my borrowing costs?
It can, but not necessarily.
If the lender considers the arrangement to increase the risk of lending, this may affect the terms offered.
Possible outcomes include:
a higher interest rate;
a smaller facility;
a shorter repayment term;
additional security requirements; or
a decline.
However, some lenders may be comfortable with a well-maintained arrangement where the company's wider financial position is strong.
The arrangement is only one part of the overall assessment.
Can strong trading performance outweigh an HMRC payment plan?
Sometimes.
Consider an established business that experienced temporary cash-flow pressure after losing a major customer.
It entered a Time to Pay arrangement but subsequently replaced the lost revenue.
Since then, the company has:
increased turnover;
returned to profitability;
maintained all HMRC instalments;
kept new tax liabilities up to date;
reduced existing borrowing; and
rebuilt its cash reserves.
That subsequent performance can provide evidence that the original difficulty was temporary.
A lender using manual underwriting may be able to consider the improvement alongside the continued existence of the arrangement.
Strong trading doesn't automatically eliminate the risk, but it can materially improve the lending proposition.
Should I wait until my HMRC arrangement is fully repaid?
Not necessarily.
If the arrangement is well maintained and the company has sufficient cash flow to support additional borrowing, some lenders may be prepared to consider an application before it has been completed.
However, waiting may improve the position where:
repayments are currently stretching cash flow;
the remaining HMRC balance is substantial;
the arrangement has recently been established;
there have been missed instalments; or
completion of the arrangement will materially improve affordability.
The key question is whether applying now produces a sustainable funding solution.
What should I do before applying for a business loan?
If your company is currently on HMRC Time to Pay, prepare a clear summary.
1. Establish the outstanding balance.
Know exactly how much remains payable.
2. Confirm the repayment schedule.
Identify the monthly instalment and remaining duration.
3. Check the payment history.
Make sure you can demonstrate that the arrangement is being maintained.
4. Review current tax liabilities.
Establish whether new VAT, PAYE or Corporation Tax obligations are being paid when due.
5. Calculate existing debt repayments.
Include business loans, asset finance and other regular finance commitments.
6. Explain why the arrangement was required.
Be able to demonstrate what caused the original problem and what has changed since.
7. Assess the affordability of the new loan.
The business needs sufficient cash flow to support both the existing arrangement and the proposed borrowing.
This information will help a lender understand the complete financial position.
When should I avoid taking another business loan?
Additional borrowing may be inappropriate where:
HMRC instalments are already unaffordable;
new tax liabilities are continuing to fall overdue;
the business is missing existing loan repayments;
arrears are increasing;
cash flow remains persistently negative; or
another loan would simply postpone an underlying financial problem.
In those circumstances, the priority may be to stabilise the company's finances rather than increase its debt.
If the company cannot pay its debts as they fall due, directors should consider obtaining appropriate professional advice.
Applying for business finance with an HMRC payment plan through Adelpha Capital
Adelpha Capital provides business finance to established UK SMEs.
Having an HMRC Time to Pay arrangement doesn't necessarily mean that an application cannot be considered.
Depending on the product and circumstances, we can consider the size and nature of the outstanding tax liability, whether the arrangement is being maintained and the company's ability to support both its existing commitments and any proposed new borrowing.
Our underwriting also considers turnover, cash flow, recent bank conduct, trading history and existing finance commitments.
A maintained HMRC arrangement can be assessed as part of the wider financial position of the business rather than necessarily resulting in an automatic decline.
If your business has an HMRC payment plan and you're looking for finance, you can apply online or contact the Adelpha Capital team to discuss your requirements.