A Time to Pay arrangement is HMRC’s payment plan for tax a company cannot pay on the due date. HMRC agrees to take the debt in monthly instalments instead of a lump sum. It does not reduce the debt. Interest keeps running, currently at 7.75% a year, until the last instalment is paid.
HMRC agrees a plan only if it believes the company can keep it. The whole negotiation turns on that one question, so the numbers you bring matter more than how you ask.
What a Time to Pay arrangement is for
It is built for a company that has a short-term cash problem and a business that still works. It covers overdue VAT, PAYE and Corporation Tax, and HMRC can fold penalties and interest already charged into the same plan.
It is the wrong tool for a company that cannot pay its current bills as they fall due. A plan adds a monthly instalment on top of those bills. A business that could not meet them before will not meet them with the plan running, and a broken plan leaves the company worse off than no plan. That situation needs wider advice on HMRC arrears, not a longer schedule.
Will HMRC agree a plan?
HMRC’s first question is whether the business cannot pay or will not pay. If it can pay, HMRC expects the tax in full and on time.
For a company that genuinely cannot pay, HMRC asks how the debt will be cleared as quickly as possible, then tests whether the proposal is realistic and affordable. Before it agrees anything, HMRC expects the company to reduce the debt by releasing assets such as stock, vehicles or shares.
It may also ask the directors to:
- put personal money into the business
- take on lending
- extend credit
Think hard before agreeing to the first of those. Money a director puts in ranks behind HMRC in a later insolvency, because HMRC’s claim for VAT and PAYE deductions is a secondary preferential debt and a director’s loan is unsecured. If the plan does not save the company, the director loses that money and the company still owes the tax.
When to ask
Ask before the tax is due, or as soon as it is clear you cannot pay. For VAT the timing has a direct price. If HMRC agrees a plan proposed within 15 days of the due date, no first late payment penalty is charged, even when the agreement comes later. If HMRC agrees one proposed by day 30, the penalty stays at 3% instead of stepping up (3% applies to VAT accounting periods beginning on or after 1 April 2025; the rate is 2% for earlier periods from 1 January 2023). If the plan is later broken, HMRC can charge those penalties as if the arrangement had never been agreed.
A plan can still be agreed after the debt is overdue, and after HMRC has passed it to a debt collection agency. It becomes harder once HMRC has moved to enforcement, and the company has less to bargain with once HMRC can serve a statutory demand, which it can do for an undisputed debt of more than £750. If the demand is not paid, secured or compounded within 21 days, HMRC can petition to wind the company up.
How to apply
Some businesses can check their eligibility and set up a plan online through HMRC’s payment plan service. If the online service does not fit, call HMRC’s payment problems line for the tax concerned. All three lines open Monday to Friday, 8am to 6pm, and are closed on bank holidays:
- VAT: 0300 200 3831
- Employer’s PAYE: 0300 200 3819
- Corporation Tax: 0300 200 3840
Have these ready before you call:
- the reference number for the tax you cannot pay
- the company’s bank details, and authority to set up a Direct Debit
- the company’s income and spending, and a cash flow forecast for the coming months
- a figure you can pay now, and a monthly figure you can sustain
- any other tax the company owes or will owe soon
Build the forecast before the call, not during it. The monthly figure you offer becomes the figure you are held to, and HMRC will expect it to be backed by the numbers.
What the arrangement will contain
- the taxes, periods and amounts it covers
- the total debt included
- each instalment, and the date it is due
There is no fixed maximum length. The term depends on how much is owed and what the company can afford, and HMRC will want it as short as the company can manage. A longer plan costs more, because interest runs on the balance throughout.
VAT, PAYE and Corporation Tax are not equal
HMRC will consider a plan for all three. They are not the same debt in an insolvency. VAT is charged to customers, and PAYE income tax and employees’ National Insurance are deducted from staff pay, for the company to pay over to HMRC. In an insolvency those rank as secondary preferential debts, ahead of the unsecured creditors. Corporation Tax and employer’s National Insurance rank as unsecured.
That is why arrears of collected taxes draw closer scrutiny, from HMRC now and from any liquidator later. If you have unpaid Corporation Tax as well, raise all of it in the same conversation.
The conditions, and what happens if you miss one
An agreed plan comes with conditions. The core ones:
- pay every instalment in full and on time
- tell HMRC about all the tax the company owes when you apply
- be honest about why the tax is unpaid and how fast it can be repaid
- tell HMRC if the company’s position improves and it can pay faster
- accept that any tax repayment due to the company will be set against the debt
- file future returns on time and pay future tax as it falls due
If an instalment is missed, HMRC will contact the company to find out why and will try to rearrange the plan where it can. That is not a safety net. HMRC can cancel a plan whose conditions are not kept, and the whole balance then falls due. From there HMRC can pass the debt to a debt collection agency, take control of company goods, go to court, or petition to close the company.
The condition most companies break is the last one. The plan covers the old debt, and next quarter’s VAT or next month’s PAYE still has to be paid in full. If a new bill cannot be paid, tell HMRC before it is due. HMRC may add it to the existing plan. Waiting until it is late puts the whole arrangement at risk.