HMRC Time to Pay arrangements

HMRC has a settled way of dealing with a tax bill that cannot be paid on the due date: the Time to Pay arrangement, which GOV.UK now usually calls a payment plan. It lets the tax be paid in instalments, normally by Direct Debit, over a period that reflects what the taxpayer can afford.

What a Time to Pay arrangement is

A Time to Pay arrangement is an agreement with HMRC to pay an overdue tax debt in instalments. It is not a reduction of the debt and it is not a right: HMRC checks whether the proposed plan is affordable, and if no plan can be agreed it will ask for the amount in full.

An arrangement can cover the tax itself and, in many cases, penalties and interest already charged. If another tax bill falls due that you cannot pay, HMRC says it may be possible to add it to the existing plan.

Who can ask for time to pay

Anyone who owes tax to HMRC can ask: individuals in Self Assessment, sole traders, partnerships, companies and other employers.

That includes people outside Self Assessment who owe tax on a bill HMRC has calculated itself, such as a Simple Assessment (PA302). If the same kind of bill arrives every year in retirement, our guide to why retired people keep getting tax bills explains what usually causes it.

If a Self Assessment bill is not yet overdue and you simply want to spread your next payment, a Budget Payment Plan may suit better. That is a separate scheme for paying ahead of the deadline.

Setting up a time to pay arrangement online

For smaller, recent debts HMRC’s online service checks eligibility and sets the plan up without a phone call. It handles Self Assessment, VAT, employer PAYE and Simple Assessment debts. GOV.UK’s guide now sends everyone to a single eligibility check, and the conditions for each tax are set out on the service’s own start pages.

You will need the reference number for the tax, a UK bank account in your name from which you can authorise a Direct Debit without another account holder’s signature, and details of your income and spending (or your company’s, if the debt is company tax). The instalments include interest at the Bank of England base rate plus 4% a year.

Self Assessment

HMRC’s online service for Self Assessment payment plans currently requires you to:

• be up to date with your tax returns
• owe £30,000 or less
• have no other tax debts
• have no other HMRC payment plans set up

HMRC has also said that an arrangement cannot be set up until the Self Assessment return has been filed.

Employer PAYE

The start page for employer PAYE says the company or partnership must:

• have missed the deadline to pay a PAYE bill
• owe £100,000 or less
• have debts that are five years old or less
• have no other payment plans or debts with HMRC
• have no outstanding employer PAYE submissions or Construction Industry Scheme returns

Simple Assessment

For a Simple Assessment bill, the online service is open to anyone who owes £50,000 or less and has no other HMRC debts or payment plans. Part can be paid upfront and the rest monthly. HMRC describes it as a one-off plan to give extra support.

A debt the online service will not take can still be the subject of an arrangement; it is simply agreed with HMRC directly.

VAT payment plans: VAT time to pay

A VAT payment plan is HMRC’s name for a Time to Pay arrangement for VAT. HMRC’s online VAT payment plan service says that, to set one up, the company or partnership must:

• have missed the deadline to pay a VAT bill
• owe £100,000 or less
• owe it for an accounting period that started in 2023 or later
• have no other payment plans or debts with HMRC
• have filed its VAT returns

The online service cannot be used by a business in the Cash Accounting Scheme or the Annual Accounting Scheme, or one that makes VAT payments on account. A business with an HMRC Customer Compliance Manager should discuss its position with them first.

Two points matter for VAT in particular:

• Timing. VAT late payment penalties start from day 16, so asking within the first 15 days can avoid them altogether (see how time to pay affects late payment penalties, below).
• Interest. Late payment interest is charged from the first day the VAT is overdue until it is paid, including while it is being paid in instalments.

A VAT debt the online service will not take, such as one over £100,000, one for an accounting period that started before 2023, or one owed alongside other tax, is negotiated by phone. GOV.UK lists the VAT payment helpline on its payment problems contact page. Expect the questions set out under “What HMRC will ask you”.

Corporation tax payment plans

There is no online service for a Corporation Tax payment plan. HMRC’s online payment plan service handles Self Assessment, VAT, employer PAYE and Simple Assessment only. GOV.UK tells a company that has missed a Corporation Tax payment deadline to call HMRC’s Corporation Tax payment helpline, and HMRC’s online digital assistant for payment problems also covers Corporation Tax.

The conversation follows the same lines as any other Time to Pay request. GOV.UK says HMRC will ask how the company will pay as quickly as it can, and will test the proposal to make sure it is realistic and affordable. It also expects the debt to be reduced as far as possible before a plan starts, and may look to the directors for funds (see “What HMRC will ask you”, below).

Two Corporation Tax points to plan around:

• The due date. A company with taxable profits of up to £1.5 million pays its Corporation Tax 9 months and 1 day after the end of its accounting period. Larger companies pay in instalments.
• Interest. HMRC charges late payment interest daily from the day after the tax was due until it is paid, including on late instalments. Late payment interest is deductible for Corporation Tax purposes.

If no plan can be agreed, a company’s tax debt can move to enforcement and, in the end, a winding-up petition: see our guide to HMRC debt collection and enforcement. Where a company cannot pay, it is also worth knowing when HMRC can make directors personally liable: see directors’ personal liability for company tax.

Larger or older debts: HMRC’s Payment Support Service

If the online service turns you away, that is not a refusal. It means the arrangement has to be negotiated with a person, usually through HMRC’s Payment Support Service or the payment helpline for the tax concerned. That is the route for debts over the online limit, plans that need longer, or more than one tax owed. HMRC runs a separate payment helpline for people who live permanently abroad, including UK expats in the UAE.

What HMRC will ask you

HMRC’s guidance and its Debt Management and Banking Manual set out what it wants to understand. In substance there are four questions:

1. Why the tax cannot be paid on time.
2. What you have done to raise the money yourself.
3. How you propose to pay the debt, and how you worked out that you can afford it.
4. What you are changing so that future tax is paid on time.

For an individual, that means your income, your usual monthly spending, and any savings or investments. HMRC expects savings and assets to be used to reduce the debt as far as possible, although it does not count the money in a pension pot as savings. Monthly payments are based on what is left after rent, food, utilities and fixed outgoings, and HMRC says you will usually be asked to pay around half of that surplus.

For a company, HMRC expects the debt to be reduced as far as possible before a plan starts, for example by releasing stock, vehicles or shares, and it may ask directors to put in personal funds, accept lending or extend credit.

There is no fixed maximum length for a negotiated arrangement: HMRC says it depends on what is owed and what can be afforded.

Interest keeps running

An arrangement does not stop late payment interest, which runs until the tax is paid. HMRC’s Self Assessment service states the rate as the Bank of England base rate plus 4% a year. Paying more each month, or clearing the debt early, reduces the total.

How time to pay affects late payment penalties

Penalties are different. Agreed in time, an arrangement can stop late payment penalties arising, in a way that depends on which regime applies.

Self Assessment and PAYE: Schedule 56

Self Assessment debts outside Making Tax Digital, including every taxpayer’s 2025-26 balance, and late employer PAYE are still under Schedule 56 to the Finance Act 2009. For Self Assessment the penalties are 5% of the tax unpaid at 30 days, six months and twelve months after the due date.

Under paragraph 10 of that Schedule, if you ask HMRC to defer payment and it agrees, you are not liable to a late payment penalty that would otherwise arise between the date of your request and the end of the arrangement. Penalties that arose before you asked are not affected. So a request made before the 30-day point, if HMRC agrees it, can prevent the first 5% penalty; one made after it cannot undo it.

VAT and MTD Income Tax: the points-based regime

VAT for accounting periods starting on or after 1 January 2023, and Income Tax for those using Making Tax Digital from 2026-27, fall under Schedule 26 to the Finance Act 2021. For 2026-27 there is no penalty if the tax is paid within 15 days; 3% of the tax unpaid at day 15 if it is paid between days 16 and 30; a further 3% of the tax unpaid at day 30; and a second penalty at 10% a year from day 31 (see our guide to late payment penalties and penalty points).

Those rates were set by regulations in force from 31 May 2025. For VAT owed for accounting periods that started between 1 January 2023 and 31 March 2025, the rates were lower: 2%, 2% and 4% a year. HMRC’s guidance shows the day-15 and day-30 percentages for Income Tax rising to 4% for 2027-28; when this guide was updated, the legislation itself still set them at 3%.

HMRC’s guidance is that asking for Time to Pay helps at each stage: within the first 15 days it can avoid penalties altogether; by day 30 it avoids the higher charge from day 31; on or after day 31 it stops the second penalty growing. For Making Tax Digital, HMRC says that where a plan is agreed and kept to, penalties are paused from the date you contacted it.

In a taxpayer’s first year under the Making Tax Digital penalties, HMRC allows 30 days rather than 15 to pay in full or contact it to set up a payment plan before penalties start. That allowance is given only once, and HMRC says people who volunteered and are now required to join keep the 15 days.

What happens if you miss a payment

GOV.UK says that if a payment is missed HMRC will contact you to find out why and, where possible, try to rearrange the plan. But breaking an arrangement can be costly:

• HMRC can cancel the arrangement and ask for the balance in full.
• Under Schedule 56, HMRC can serve notice making the penalty that the arrangement held off payable after all.
• Under the points-based regime, HMRC’s VAT guidance says that if an arrangement is cancelled, both late payment penalties are charged as if it had never existed.

If a payment is going to be missed, telling HMRC beforehand leaves more room to agree a revised plan. An arrangement also normally assumes that new tax is paid on time as it falls due.

If no arrangement is made: HMRC’s enforcement steps

HMRC says it will try to contact you before taking action, and describes its enforcement powers as a last resort. If there is no contact, or no plan can be agreed, it may:

• refer the debt to a debt collection agency, which contacts you by letter, text or phone and can discuss a Time to Pay arrangement
• collect through your tax code if you have PAYE income, or set the debt against any repayment due to you
• use direct recovery of debts to take money from bank or building society accounts in England, Wales and Northern Ireland, where £1,000 or more is owed and enough is left for reasonable living costs
• take control of goods in England and Wales, after a notice of enforcement that since 1 May 2026 must be given at least 14 clear days beforehand, or use distraint in Northern Ireland; in Scotland it uses a summary warrant instead
• take county court action, for example a charging order over property
• as a final step, petition for bankruptcy or, for a company, winding up

Our guide to HMRC debt collection and enforcement explains each of these, including how to check a debt collection agency is genuine and when HMRC can take money from a bank account.

The HMRC 7-day warning letter

Before petitioning to wind up a company, HMRC may write warning that unless the debt is paid in full within seven days, it will instruct its solicitors to present a winding-up petition. HMRC’s own manual calls this an insolvency warning letter, and does not publish its wording or the time it allows. One such letter, quoted in a 2025 High Court judgment, explained that a petition would be advertised in the Gazette no less than seven business days after it was served, and that the company’s bank might freeze its account. HMRC also has a version of the letter that cancels a Time to Pay arrangement that has broken down.

A 7-day letter is a warning, not a petition. Contacting HMRC promptly with a realistic, evidenced proposal is the obvious first step, and if a petition is threatened, a solicitor or licensed insolvency practitioner should be involved at once.

Tax from an enquiry or a disclosure

Some large bills come not from a missed deadline but from a compliance check or from putting past years right. The same principles apply, but the payment conversation can start before the bill is final.

If you are making a voluntary disclosure through the Digital Disclosure Service, HMRC expects payment with the disclosure, within 90 days of the date it acknowledges your notification. If you cannot pay in full, its guidance is to contact HMRC and agree payment arrangements before submitting the disclosure. The Worldwide Disclosure Facility works the same way for offshore matters. A disclosure can therefore go in with the payment proposal already agreed.

Where an enquiry closes with tax to pay, the timing of payment can be raised as part of settling it. Penalties are a separate question; our guide to careless, deliberate and concealed penalties explains how they are set.

If a letter about unpaid tax has arrived and you are not sure what it is, start with identifying your HMRC letter, or contact us with a photo of page one.

Sources

• HMRC, “If you cannot pay your tax bill on time” (GOV.UK), including “How much you’ll pay” and “If you do not contact HMRC or refuse to pay”
• HMRC online payment plan service start pages (tax.service.gov.uk): “Set up a Self Assessment payment plan”, “Set up a VAT payment plan”, “Set up an Employers’ PAYE payment plan” and “Set up a Simple Assessment payment plan”
• HMRC, “Payment problems: enquiries” (GOV.UK)
• HMRC, “Pay your Corporation Tax bill” and “Corporation Tax: interest charges” (GOV.UK)
• HMRC, “Submit your VAT Return: late returns and payment” (GOV.UK)
• HMRC, “Simple Assessment” (GOV.UK), which points anyone who cannot pay a Simple Assessment bill on time to the same help
• HMRC, “What will happen if you do not pay your tax bill” (GOV.UK)
• HMRC, “How late payment penalties work if you pay VAT late” and “Penalties for Making Tax Digital for Income Tax” (GOV.UK)
• HMRC, “Make a voluntary disclosure to HMRC” and “Make a disclosure using the Worldwide Disclosure Facility” (GOV.UK)
• HMRC Debt Management and Banking Manual, DMBM802100 (Time to Pay requests: deciding which information to gather)
• Finance Act 2009, Schedule 56 (penalties for failure to pay), paragraph 10 (agreements to defer payment)
• Finance Act 2021, Schedule 26 (late payment penalties), and the Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025 (SI 2025/589), in force 31 May 2025
• HMRC, “Penalties for Making Tax Digital for Income Tax” (GOV.UK)
• Finance (No. 2) Act 2015, Schedule 8 (direct recovery of debts); Finance Act 2008, sections 127 and 128 (taking control of goods and summary warrants); Taking Control of Goods Regulations 2013, regulation 6, as amended from 1 May 2026 by SI 2026/366
• HMRC Debt Management and Banking Manual, DMBM685505 and DMBM685535 (insolvency warning letters)
• DG Resources Ltd v HMRC [2025] EWHC 2208 (Ch), quoting an HMRC 7-day demand letter

This guide is general information, not advice on any particular case.