HMRC Time to Pay — how a UK business spreads a tax bill, what it costs, and when borrowing is cheaper

A Time to Pay (TTP) arrangement is HMRC's own instalment plan for tax you can't pay in full — but it isn't free, and it isn't guaranteed. HMRC has no statutory obligation to grant one; it's discretionary, decided on your financial position, payment history and how credibly you engage with the process. Interest keeps running on the outstanding balance from the tax's original due date, currently at 7.75% a year, so the total you eventually repay is always more than the bill itself. And whether it's cheaper than simply borrowing to clear the debt outright depends on what your business can actually get quoted elsewhere.

Key takeaways

What Time to Pay actually covers, and why HMRC treats some taxes differently

Most UK tax liabilities can, in principle, sit inside a Time to Pay arrangement: VAT, PAYE and National Insurance contributions, Corporation Tax, Self Assessment income tax, CIS deductions, and tax penalties. By volume, VAT is the most common TTP debt, alongside PAYE and employee NICs; Corporation Tax arrears come up less often but tend to involve larger sums.

How flexible HMRC is about each of these varies a lot, and it's worth understanding why. PAYE and employee NICs are pursued the hardest, because HMRC treats that money as having already been collected from employees and held by the company as a fiduciary, not as the company's own funds. VAT gets similar treatment for the same reason — it was collected from customers, not earned by the business. Corporation Tax sits at the other end: because the liability is genuinely the company's own debt, HMRC has the most flexibility to negotiate around it. If your arrears are mostly PAYE or VAT rather than Corporation Tax, expect a harder conversation.

Whatever tax is in arrears, current obligations still have to be met in full as they fall due — a TTP covers the backlog, not a licence to start missing this quarter's VAT return as well.

Setting one up: the online limit, and when you have to phone

How you apply depends entirely on which tax and how much you owe.

Route	Who it's for	Conditions	Maximum length
Online, self-serve	Self Assessment only	Owe £30,000 or less; all returns filed; no other HMRC debts or active plans; within 60 days of the payment deadline	Up to 12 months
Phone (Business Payment Support Service)	VAT, PAYE, Self Assessment over £30,000, or longer terms needed	Reference number, amount owed, reason you can't pay, what you've tried, expected changes to finances, bank details for Direct Debit	Adviser can agree up to 12 months on the call; longer or larger cases go to a manager
Phone only	Corporation Tax	No online option exists at all — a cashflow forecast, recent bank statements, and details of any other HMRC debts or arrangements are usually requested	Same as above

The online route has proven genuinely popular for Self Assessment debtors: nearly 18,000 payment plans — 17,955 precisely — were set up online between 6 April and 30 November 2025. But it only works once your return has actually been filed, and it stops being available the moment your bill exceeds £30,000 or you need longer than the online tool offers; at that point you're calling HMRC directly regardless of how straightforward your case is.

For Corporation Tax specifically, there's no self-serve option under any circumstances — you contact HMRC's Business Payment Support Service and bring a proper financial case with you. The call itself typically takes 20 to 30 minutes, and the adviser you speak to has authority to agree an arrangement of up to 12 months on the spot; anything longer or involving a larger sum gets referred to a manager, adding a few days to the process. Call the Business Payment Support Service on the number on your HMRC letter.

Whatever the route, HMRC wants a real picture of your finances: current income and expenditure, savings, investments and other assets, and — for an individual — it will accept a Standard Financial Statement from an independent debt adviser like Citizens Advice in place of its own form. For a company specifically, HMRC will also expect the business to have tried to reduce the debt itself first, by releasing assets such as stock, vehicles or shares where it reasonably can, and it may directly ask directors about putting in personal funds, accepting lending, or extending credit before it agrees to spread the balance. That last point matters for the borrowing comparison below — HMRC's own process assumes you've already looked at finance as an alternative.

How much you'll be asked to pay each month

As a broad guide, HMRC typically expects around 50% of your disposable income — whatever's left after your fixed outgoings — to go toward the arrangement each month, though this can be higher if your disposable income is substantial. A small business with £1,000 left over each month after essential outgoings would typically be expected to put around £500 a month toward the debt.

HMRC won't ask you to sell your family home to fund an arrangement, and it won't expect you to access pension funds early. It may, however, consider taking a charge on your home to secure the debt if an arrangement can't otherwise be agreed — a real cost some directors don't anticipate when they assume TTP is simply unsecured.

How long an arrangement can actually run

Most Time to Pay plans run for up to 12 months. GOV.UK sets no fixed limit — the length depends on what you owe and what you can afford — but a plan longer than a year needs a strong affordability case, and the online Self Assessment tool itself stops at 12 months.

The interest: why spreading the bill isn't free

HMRC's interest rates are set in legislation and tied to the Bank of England base rate, not set at HMRC's own discretion. The late payment rate has been base rate plus 4% since 6 April 2025 — up from base rate plus 2.5% before that date — putting the current late payment rate at 7.75% a year from 9 January 2026, calculated daily on the outstanding balance. The rate HMRC pays you on overpaid tax moved the same day to 2.75%, set at base rate minus 1% with a floor of 0.5% — that floor kept repayment interest at 0.5% even while the base rate sat at 0.1%, and it only starts rising again once the base rate itself climbs past 1.5%.

The detail that catches people out most is timing: interest is applied from the tax's original due date, not from the date the Time to Pay arrangement is actually agreed. That means the total you eventually repay is always higher than the original bill, and it keeps accruing throughout the arrangement — so a longer plan lowers your monthly payment but increases the total interest you end up paying overall.

Two real cases show how this plays out. A hospitality business came to a Time to Pay negotiation with £45,000 of accumulated VAT arrears after a difficult trading period, and by the time it engaged, HMRC had already issued a statutory demand; a 10-month repayment plan was agreed, the statutory demand was withdrawn, and the company kept trading. Separately, a self-employed decorator owing £4,800 in Self Assessment tax after a slow year set up an online plan through his Business Tax Account and deliberately chose to pay slightly more than the minimum offered each month — a straightforward way to bring the total interest down without renegotiating the whole plan.

Is it actually cheaper to borrow instead?

Here's the comparison worth running before you commit to a Time to Pay arrangement rather than clearing the bill with finance. HMRC's own published rate — 7.75% a year, calculated daily, running from the original due date until the balance is cleared — is the real, current cost of spreading the debt with HMRC. That's a hard number you can actually put a business loan, asset finance facility or overdraft quote up against.

A few things are worth weighing alongside the raw rate. HMRC's process, particularly for companies, already expects you to have tried releasing assets or arranging finance before it agrees to spread the balance — so a lender-funded payoff isn't cutting against the grain of what HMRC itself wants to see. A TTP is largely unsecured for most businesses (barring the home-charge scenario above), whereas commercial finance may ask for security depending on the amount and your file — that's a real trade-off, not a reason to dismiss borrowing outright. And a Time to Pay arrangement doesn't put you through a credit application, though HMRC still runs its own affordability check.

The honest answer is that the deciding factor is rarely the interest rate alone. It's whether the business can actually get approved for finance while carrying an HMRC balance in the first place — a lender reading fresh accounts and bank statements will notice a live tax debt or a repayment pattern whether or not the arrangement itself shows up formally, which is exactly the point covered next. Get a genuine quote for whatever's realistically available to your business, and compare it against 7.75% before assuming either option is automatically cheaper. If tax arrears are already part of the picture and you're weighing finance against a Time to Pay arrangement, our New Zealand companion piece on business finance when you owe Inland Revenue covers the same trade-off from the other side of the world, and our guide to unsecured business loans is worth reading if security is the sticking point.

What happens if you miss a payment

If you miss an instalment, HMRC will usually contact you first to ask why and try to rearrange the plan. But it can cancel the arrangement and demand the full outstanding balance, with penalties, and by then the total can be larger than the original debt. Call HMRC at once — don't wait to see what it does.

Once an arrangement does break down, or HMRC decides not to engage further, the escalation path is real: a debt collection agency, recovering money directly from wages or bank accounts, taking control of and selling assets, court proceedings, personal bankruptcy, or — for a company — a winding-up petition. HMRC has also resumed its Direct Recovery of Debt powers from April 2026, which in certain circumstances lets it recover money directly from a taxpayer's bank accounts without first obtaining a court order — a materially sharper tool than existed a couple of years ago. Where enforcement does proceed after a rejected or failed arrangement, the typical route is a statutory demand followed by a winding-up petition under section 124 of the Insolvency Act 1986.

Does a lender ever see this?

A Time to Pay arrangement is a private agreement between you and HMRC. It isn't registered at Companies House and isn't reported to credit reference agencies the way a county court judgment or a formal insolvency process is — it doesn't, by itself, appear on your company's credit file. That much is consistent across the guidance.

What's worth being precise about is what that protection doesn't cover. The underlying tax debt itself may already be affecting your creditworthiness before any arrangement is even agreed, and if a Time to Pay arrangement later breaks down and HMRC obtains a county court judgment or pushes toward insolvency, that enforcement action absolutely can show up on your credit record — the arrangement's privacy doesn't survive its own failure. And separately from anything a credit file shows, if a company is insolvent or approaching insolvency and continues trading and racking up tax liabilities without addressing the position, directors can face personal liability concerns. HMRC's route to that personal liability doesn't usually run through a personal guarantee the way bank debt does; the specific mechanisms are Personal Liability Notices under the Social Security Administration Act 1992 for unpaid National Insurance, and Joint and Several Liability Notices under the Finance Act 2020 for tax-avoidance and certain insolvency-related cases.

In practice, a lender doing real underwriting on your latest accounts and bank statements will very often notice a live tax debt or an unusual repayment pattern regardless of whether the arrangement itself is formally reported anywhere — "it's not on the credit file" isn't the same as "a lender won't see it." Our guide to why business loan applications get declined covers how that kind of signal typically plays into a real credit decision.

If HMRC refuses, or the problem is bigger than one tax debt

There's no formal right of appeal against a refused Time to Pay request, though you can complain and ask for the decision to be reviewed, and ultimately escalate to the Adjudicator's Office if you're still unhappy. If HMRC refuses because it believes the company is already close to insolvency, it may move straight to enforcement action or a winding-up petition rather than negotiate further.

Where the tax debt is really a symptom of a wider creditor problem that a straightforward instalment plan won't fix, a Company Voluntary Arrangement is the more formal alternative — it can bind HMRC to a creditor-approved repayment plan, but it needs a 75% creditor vote to pass, and HMRC's own vote is often the decisive one in the room. If a CVA fails, the company ends up in liquidation, so it's a heavier tool to reach for than a straightforward TTP.

One trap worth flagging if part of the debt is genuinely disputed: accepting instalments under a Time to Pay arrangement while simultaneously appealing the liability can, in some circumstances, be read as having accepted the debt — potentially weakening your position in the dispute. For VAT specifically, a valid appeal usually automatically suspends the obligation to pay in the meantime, which is a materially different position from quietly paying instalments on a bill you're actively contesting.

Frequently Asked Questions

What taxes can be included in a Time to Pay arrangement? VAT, PAYE and NICs, Corporation Tax, CIS deductions, Self Assessment income tax, and tax penalties can all in principle be included — though HMRC is far less flexible on PAYE and VAT, which it treats as money held on trust, than on Corporation Tax, which is the company's own debt.

Does HMRC charge interest on a Time to Pay arrangement? Yes — currently 7.75% a year, calculated daily on the outstanding balance, running from the tax's original due date rather than from when the arrangement starts, so the total repaid is always more than the original bill.

What happens if I miss a payment? HMRC will usually contact you first to rearrange the plan, but it can cancel it and demand the full balance. Call HMRC at once.

Will a Time to Pay arrangement show up if I apply for a business loan? The arrangement itself isn't reported to credit reference agencies and won't appear on your credit file directly. The underlying tax debt, and any enforcement that follows if the arrangement later breaks down, can still affect how a lender reads your business.

Is it cheaper to borrow and clear the bill outright? Compare whatever rate you can actually get quoted against HMRC's current 7.75% late payment rate — but weigh that against whether the business can realistically get approved for finance while carrying the tax debt in the first place, which is often the bigger practical constraint.

Deplexifi helps UK businesses work out whether clearing an HMRC balance with finance, or negotiating a Time to Pay arrangement, is the cheaper and more workable route for a real tax bill — talk to us before you call HMRC.

HMRC's interest on a Time to Pay arrangement runs from the tax's original due date, not from when the arrangement is agreed — so the plan always costs more than the headline bill, and the exact current margin above the Bank of England base rate is misreported in some published guidance, so check GOV.UK's own rate table directly rather than a secondary source

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.