What Is an HMRC Time to Pay Arrangement and How Does It Work?
An HMRC Time to Pay arrangement is an agreement that allows a business to repay outstanding tax liabilities through instalments rather than paying the full amount immediately.
If your company cannot afford to settle a VAT, Corporation Tax or PAYE liability when it falls due, HM Revenue & Customs (HMRC) may agree to spread the payment over a period that reflects your financial circumstances.
However, Time to Pay isn't an automatic entitlement. HMRC will normally want to understand why the business cannot pay, how much it can afford and whether it will be able to meet future tax obligations.
For businesses experiencing temporary cash-flow difficulties, an agreed arrangement can provide valuable breathing space.
The important consideration is that the repayment plan must be realistic and sustainable.
What is an HMRC Time to Pay arrangement?
Time to Pay is a discretionary arrangement offered by HMRC to businesses and individuals who cannot pay a tax liability in full by its deadline.
Rather than requiring immediate settlement of the entire outstanding amount, HMRC may agree to accept instalments.
For example, suppose a limited company owes £24,000 in overdue VAT.
If HMRC agrees to a 12-month repayment arrangement, the company might repay the principal through instalments averaging £2,000 per month, plus applicable interest.
The precise repayment schedule would depend on the agreement reached with HMRC.
The arrangement doesn't reduce or write off the underlying tax liability. It changes the timing of the repayments.
The business remains responsible for paying the amount owed, together with any applicable interest and penalties.
Which business taxes can be included in Time to Pay?
Time to Pay arrangements may be available for several types of tax liability.
These include:
Value Added Tax (VAT);
Corporation Tax;
PAYE Income Tax;
National Insurance contributions;
Self Assessment liabilities for sole traders; and
certain other taxes administered by HMRC.
Eligibility and the process for arranging instalments can differ depending on the tax involved and the circumstances.
For example, a limited company struggling to pay Corporation Tax may need to provide different information from a sole trader seeking an arrangement for personal Self Assessment liabilities.
Businesses should contact HMRC through the appropriate service for the tax involved.
Who is eligible for an HMRC Time to Pay arrangement?
HMRC generally considers Time to Pay where a taxpayer cannot settle an outstanding liability in full but has a realistic ability to repay it over time.
For a business, HMRC may consider:
Financial circumstances
Why can't the company pay the full amount immediately?
Available resources
Does the business have cash, assets or other resources that could be used to reduce the debt?
Repayment capacity
How much can the company reasonably afford each month?
Future tax obligations
Will the business be able to meet new tax liabilities while repaying its existing arrears?
Length of the arrangement
Can the liability be cleared within a reasonable period?
The existence of financial difficulty doesn't automatically mean that HMRC will approve a payment plan.
A business must demonstrate that the proposed arrangement offers a credible route to repayment.
How do I apply for an HMRC Time to Pay arrangement?
Businesses may be able to arrange payments online or may need to contact HMRC directly.
The process generally involves the following steps.
Step 1: Establish the amount owed
Identify the relevant tax liability, including the amount outstanding and payment deadline.
You should also establish whether interest or penalties have already been added.
Step 2: Review the company's financial position
Before approaching HMRC, consider how much the business can genuinely afford to repay.
This should include normal operating expenses, existing borrowing, payroll, suppliers and upcoming tax liabilities.
Step 3: Prepare a repayment proposal
Calculate a realistic monthly instalment based on the company's available cash flow.
HMRC may expect the business to repay the debt as quickly as reasonably possible.
Step 4: Contact HMRC
Use the appropriate HMRC service to request a payment plan.
You may be able to complete the process online, depending on eligibility.
Otherwise, HMRC will normally need to discuss the company's financial circumstances and proposed repayment schedule.
Step 5: Agree the arrangement
If HMRC accepts the proposal, it will establish the repayment terms.
The company must then make the agreed payments and meet any other conditions.
You can start through the official HMRC payment plan service.
What information will HMRC ask for?
HMRC may request information about the company's finances before agreeing to Time to Pay.
This can include:
amount of tax owed;
tax reference numbers;
current bank balances;
business income;
operating expenses;
existing loan repayments;
outstanding creditors;
available savings or assets;
expected future income; and
the proposed monthly repayment.
HMRC may also ask whether the business can raise funds by selling assets, obtaining finance or introducing additional capital.
The purpose of these questions is to establish whether the repayment proposal is realistic and whether the company could settle more of the liability immediately.
Having an accurate understanding of the company's finances before making the request can make the process easier.
How long can an HMRC Time to Pay arrangement last?
There isn't a universal maximum repayment period for every Time to Pay arrangement.
HMRC considers the amount outstanding and the taxpayer's ability to pay.
For example, an arrangement might last six months, 12 months or longer, depending on the circumstances.
However, businesses shouldn't assume they will automatically be offered a particular term.
HMRC's general approach is to seek repayment as quickly as reasonably possible.
A company that can comfortably repay £5,000 per month may find it difficult to justify requesting a significantly longer arrangement based on payments of £1,000 per month.
Conversely, HMRC may consider a longer period where the financial information supports it.
The arrangement needs to balance repayment of the tax debt with the business's ability to remain financially viable.
How much will I have to pay each month?
The monthly instalment will depend on the amount outstanding, the agreed duration and any applicable interest.
For illustration, consider a business with £30,000 of outstanding tax.
Repayment period | Average monthly principal repayment |
6 months | £5,000 |
10 months | £3,000 |
12 months | £2,500 |
18 months | £1,667 |
These are illustrative calculations excluding interest and penalties. They aren't representations of terms HMRC will necessarily agree.
A longer arrangement may make the monthly commitment more manageable, but it can also increase the total interest payable.
The company needs to propose an instalment that is affordable while allowing it to meet its other obligations.
Does HMRC charge interest on Time to Pay arrangements?
Yes, interest generally continues to accrue on overdue tax while a Time to Pay arrangement is in place.
The applicable interest rate depends on the tax involved and HMRC's prevailing rules.
The rate can change over time.
For example, if a company owes £30,000 and repays the debt gradually, interest may be charged on the outstanding balance until the liability has been settled.
This means the total amount paid can exceed the original tax debt.
A Time to Pay arrangement therefore isn't necessarily an interest-free solution.
However, the total cost may still be lower than using certain forms of commercial borrowing.
Businesses should compare the cost of the available options before deciding how to fund a tax liability.
Does Time to Pay stop HMRC penalties?
It can reduce or prevent certain late payment penalties, depending on the tax involved and when the arrangement is requested and agreed.
For VAT accounting periods beginning on or after 1 January 2023, HMRC operates a late payment penalty regime.
Under that regime, an agreed Time to Pay arrangement can affect the penalties charged, particularly where the business approaches HMRC promptly and maintains the arrangement.
For example, requesting and subsequently agreeing Time to Pay within the first 15 days after the VAT payment deadline can prevent the relevant late payment penalty from arising.
Later arrangements may still reduce additional penalties.
However, late payment interest can continue to accrue even where a Time to Pay arrangement prevents further penalties.
The exact treatment varies between taxes, so businesses should check HMRC's current rules for the particular liability.
Can I set up Time to Pay before the tax bill is overdue?
You should contact HMRC as soon as you anticipate difficulty paying a tax liability.
Early engagement can be beneficial, particularly where it helps avoid additional penalties or enforcement action.
However, HMRC's online payment plan service is generally designed for overdue tax liabilities, and the available process can depend on the tax involved.
A business that expects to have difficulty meeting an upcoming payment should not simply wait until the debt becomes substantially overdue.
It should establish the appropriate options with HMRC as early as possible.
What happens after HMRC agrees to Time to Pay?
Once an arrangement is agreed, the business must maintain the instalments and comply with the agreed conditions.
Payments are generally collected through Direct Debit.
The business should ensure that sufficient funds are available when each payment falls due.
It should also keep a record of the arrangement, including:
original liability;
agreed repayment amount;
payment dates;
remaining balance;
expected completion date; and
any subsequent changes agreed with HMRC.
It is also important to continue filing tax returns and addressing new liabilities as they arise.
An existing Time to Pay arrangement doesn't remove the company's ongoing tax responsibilities.
Do I still have to pay new tax bills while on Time to Pay?
Yes.
One of HMRC's central expectations is that businesses should be able to meet tax liabilities that become due during the arrangement.
For example, a company might enter a Time to Pay arrangement to repay £24,000 of historic VAT arrears.
It would then need to maintain those instalments while ensuring that new VAT, PAYE and Corporation Tax liabilities are properly managed.
If the company continues accumulating additional arrears, this may indicate that the underlying cash-flow problem hasn't been resolved.
HMRC may consider whether an existing arrangement needs reviewing, but businesses shouldn't assume that new unpaid taxes will automatically be added to it.
What happens if I miss an HMRC Time to Pay payment?
Missing an agreed instalment can put the arrangement at risk.
HMRC may contact the business to establish why the payment was missed and whether the financial circumstances have changed.
In some circumstances, HMRC may be willing to renegotiate the arrangement.
However, this isn't guaranteed.
Where the company repeatedly misses payments or cannot agree a sustainable revised plan, HMRC may cancel the arrangement and resume recovery activity.
The most important action is to contact HMRC immediately if you believe an instalment cannot be met.
Ignoring the problem can increase the risk of enforcement action.
Can I change an existing Time to Pay arrangement?
Potentially.
HMRC recognises that financial circumstances can change.
For example, a company might lose a major customer and become unable to maintain its original repayments.
Alternatively, the business might receive a substantial customer payment and become able to settle the liability earlier.
HMRC may agree to review the repayment schedule based on updated financial information.
The revised arrangement will depend on the circumstances and HMRC's approval.
A business should not unilaterally reduce its instalments or stop making payments without discussing the position with HMRC.
Can I pay off a Time to Pay arrangement early?
Yes.
A business that has sufficient cash available can generally repay the outstanding liability earlier than originally agreed.
Early settlement can reduce the amount of interest that would otherwise accrue.
However, the company should consider its wider working-capital requirements before using substantial cash reserves.
Clearing an HMRC arrangement may be beneficial, but not if it leaves the business unable to pay wages, suppliers or future taxes.
The decision should reflect the company's overall financial position.
Can I have more than one HMRC Time to Pay arrangement?
Potentially, although multiple outstanding tax liabilities or existing arrangements may result in additional scrutiny.
HMRC will want to understand the company's complete financial position.
For example, a business may already be repaying historic Corporation Tax arrears when it experiences difficulty paying a new VAT liability.
HMRC may review the existing arrangement and consider the additional debt.
However, there is no guarantee that HMRC will agree to another arrangement simply because it previously approved one.
Repeated requests can raise questions about whether the business is generating sufficient cash to meet its normal tax obligations.
Does an HMRC Time to Pay arrangement affect my business credit score?
Not automatically.
An HMRC payment arrangement doesn't necessarily appear as a conventional credit default on a commercial credit report.
However, the underlying tax arrears can still affect the company's creditworthiness.
If the debt results in formal court or insolvency proceedings, relevant public information may be identified by credit reference agencies and lenders.
Even where no adverse public record exists, a lender may become aware of the arrangement through the application process, financial accounts or bank statements.
A business credit score therefore doesn't necessarily provide a complete picture of the company's tax position.
Can I get a business loan while on an HMRC Time to Pay arrangement?
Potentially.
Some business lenders are prepared to consider companies with maintained HMRC payment arrangements.
Others have lending policies that exclude outstanding tax arrears.
A lender may consider:
amount originally owed;
current outstanding liability;
agreed monthly repayment;
remaining duration;
whether payments are up to date;
whether new tax liabilities are being paid;
recent bank conduct; and
the company's overall ability to service additional debt.
A maintained Time to Pay arrangement may be regarded more favourably than unmanaged arrears.
However, the HMRC instalments must still be included when assessing affordability.
For example, a business already paying £3,000 per month to HMRC has less free cash flow available to service a new loan.
Is an HMRC Time to Pay arrangement better than taking a business loan?
It depends on the circumstances.
An HMRC arrangement may be appropriate where the business needs additional time to settle an existing tax liability and can agree affordable instalments directly with HMRC.
A commercial business loan may be suitable where the company has a broader working-capital requirement and sufficient capacity to support borrowing.
The two options should be compared carefully.
Consideration | HMRC Time to Pay | Business loan |
Main purpose | Repayment of outstanding tax | Business funding, subject to permitted purpose |
Approval | HMRC discretion | Lender's credit assessment |
Repayments | Agreed instalments | Contractual repayment schedule |
Interest | HMRC interest rules | Commercial lending terms |
Security | Not ordinarily structured as an asset-secured loan | May require security or guarantees |
Future obligations | New taxes must still be managed | Loan repayments add to existing commitments |
A commercial loan may carry substantially higher financing costs than an HMRC arrangement.
Borrowing solely to replace a manageable tax repayment plan may therefore be difficult to justify commercially.
What if HMRC refuses a Time to Pay arrangement?
If HMRC declines a proposed repayment arrangement, the business should establish why.
Possible reasons may include:
HMRC considers that the company can pay more immediately;
the repayment proposal is unrealistic;
the company has sufficient available assets;
the proposed duration is excessive; or
there is insufficient confidence that future payments will be maintained.
The business may need to reconsider the proposal or provide additional financial information.
However, HMRC isn't obliged to approve an arrangement.
If no acceptable repayment solution can be agreed, the company may face recovery action.
Where the business cannot pay its debts as they fall due, obtaining advice from an appropriately qualified insolvency professional may be necessary.
What happens if I ignore HMRC tax arrears?
Ignoring outstanding tax liabilities can have serious consequences.
HMRC has a range of debt recovery powers.
Depending on the circumstances, it may:
contact the business to seek payment;
instruct debt collection agencies;
take enforcement action against assets;
pursue legal proceedings; or
seek to wind up an insolvent limited company.
The action taken will depend on the circumstances of the debt.
A Time to Pay arrangement can help manage an outstanding liability, but it is not a guarantee against enforcement if the agreement is breached or the company cannot meet its obligations.
Early engagement with HMRC is generally preferable to allowing the situation to escalate.
How can I make an HMRC payment arrangement more manageable?
The most effective approach is to prepare a realistic cash-flow forecast before agreeing to repayments.
Consider the following.
Understand the complete tax liability
Establish the total amount owed, including any applicable interest and penalties.
Forecast future tax payments
Include new VAT, Corporation Tax, PAYE and National Insurance commitments.
Account for existing borrowing
Make sure the arrangement is affordable alongside current finance repayments.
Review customer payment patterns
If revenue is seasonal or customer receipts are irregular, consider how this affects monthly repayment capacity.
Avoid overcommitting
A repayment proposal that appears attractive to HMRC but cannot be sustained may create greater problems later.
Maintain communication
If financial circumstances change, contact HMRC before payments are missed.
The goal should be to repay the arrears while allowing the business to return to a stable financial position.
Can an HMRC Time to Pay arrangement help a struggling business recover?
Potentially.
A company may experience a temporary financial setback while remaining fundamentally viable.
For example, a business might suffer a substantial bad debt, temporarily reducing the cash available to meet a VAT liability.
If the underlying business remains profitable and generates sufficient ongoing cash flow, an HMRC arrangement may allow the company to repay the liability gradually.
However, an arrangement doesn't solve every financial problem.
Where a business continually generates insufficient cash to meet its operating costs and taxes, spreading existing liabilities over a longer period may simply postpone the difficulty.
The key question is whether the business can return to meeting its obligations without repeatedly accumulating additional debt.
HMRC Time to Pay and business finance with Adelpha Capital
Adelpha Capital provides business finance to established UK SMEs.
We recognise that businesses can experience temporary cash-flow difficulties, including circumstances that lead to HMRC payment arrangements.
Depending on the product and circumstances, we can consider an existing Time to Pay arrangement as part of the wider credit assessment.
Our underwriting considers the amount outstanding, repayment history and affordability of the arrangement, alongside the company's turnover, cash flow, recent bank conduct and existing borrowing.
Not every application involving HMRC arrears will meet our lending criteria.
The key consideration is whether the business can sustainably support any proposed borrowing alongside its existing financial commitments and ongoing tax obligations.
If your business is looking for working-capital finance, you can apply online or contact the Adelpha Capital team to discuss your requirements.