Tax Payment Plan: How to Set Up an HMRC Self Assessment Payment Plan

What Is a Tax Payment Plan?

If you cannot pay your tax on time, A tax payment plan allows a taxpayer to pay an overdue or unaffordable HMRC liability in instalments over an agreed period. HMRC commonly refers to this as a Time to Pay arrangement.

The agreement normally sets out:

• The tax debt included in the arrangement
• The amount of any initial payment
• The monthly instalment amount
• The payment dates
• The expected final payment date
• The method of payment, usually Direct Debit
• The taxpayer’s obligation to keep future taxes and returns up to date

HMRC assesses each case according to the taxpayer’s circumstances. The arrangement must be realistic, affordable and designed to clear the debt as quickly as reasonably possible.

What Is a Self Assessment Payment Plan?

A Self Assessment payment plan is a Time to Pay arrangement specifically for tax charged through Self Assessment. It may cover a balancing payment, payments on account, Income Tax, Class 4 National Insurance and other amounts included in the Self Assessment statement.

You must normally file the relevant tax return before a plan can be set up. Until the return is submitted, HMRC may not know the final amount due.

A Self Assessment tax payment plan does not change the statutory filing or payment deadline. The tax remains due on the original date, and late-payment interest normally continues to accrue until the balance is cleared.

What Is HMRC Time to Pay?

Spreading tax payments by using Time to Pay is HMRC’s general term for an instalment arrangement. It is available across a range of taxes, although the eligibility rules and application route differ according to the type and amount of debt.

For an individual with a Self Assessment liability, there are two main routes:

• An online self-service application where the eligibility conditions are met
• A directly negotiated arrangement with HMRC where the online service is unavailable or unsuitable

Taxpayers who owe more than the online limit, need longer to pay, have other HMRC debts or cannot meet the online conditions may still be considered. They will normally need to contact HMRC and provide more detailed financial information.

Who Can Set Up an Online Self Assessment Payment Plan?

HMRC currently allows eligible Self Assessment taxpayers with bills of up to £30,000 to explore an online Time to Pay arrangement without calling HMRC. A plan cannot be set up until the relevant Self Assessment return has been filed.

Online eligibility is checked when you use the HMRC service. Factors commonly considered include whether:

• The relevant Self Assessment return has been filed
• The amount due falls within the online service limit
• You are applying within the permitted period
• You do not have unresolved outstanding tax returns
• You do not have other HMRC debts or payment plans that prevent self-service
• The proposed repayment period meets HMRC’s online criteria
• You can make payments by Direct Debit from a UK bank account

Eligibility can change, and the online service makes the final automated assessment. Being unable to use the online route does not necessarily mean HMRC will refuse a directly negotiated plan.

What If You Owe More Than £30,000?

You may still be able to arrange an HMRC payment plan, but you will normally need to contact HMRC. A higher debt often requires a fuller review of income, spending, savings, assets and the cause of the arrears.

What If You Need More Time?

HMRC does not publish one universal maximum duration for every negotiated Time to Pay agreement. It will usually expect the debt to be cleared as quickly as possible while keeping the instalments affordable and sustainable.

Longer arrangements may be considered where the evidence supports them, but HMRC may ask why the debt cannot be cleared sooner or whether assets and savings can be used.

When Should You Contact HMRC?

Contact HMRC as soon as you know that the full bill cannot be paid. You do not need to wait until enforcement action begins.

• Give you more time to prepare a realistic proposal
• Reduce the risk of avoidable penalties
• Help prevent debt collection action
• Demonstrate that you are trying to resolve the problem
• Allow HMRC to consider a plan before the debt grows further

If the tax return has not yet been submitted, file it promptly. Filing late and paying late are separate failures and can result in separate penalties.

Can You Arrange a Payment Plan Before the Deadline?

You can pay a Self Assessment bill in smaller amounts before the deadline, provided the full balance is cleared on time. This does not require a Time to Pay agreement.

Where you already know that the full amount will not be paid by the due date, check the online service or contact HMRC as early as possible. HMRC’s ability to agree a formal arrangement may depend on the liability being established through a filed return.

Tax Payment Plan Versus Budget Payment Plan

Information Needed to Set Up a Tax Payment Plan

For an online application, you will normally need:

• Your Unique Taxpayer Reference
• Your Government Gateway or HMRC online account details
• The amount shown as due
• Your UK bank account details
• Authority to create a Direct Debit

Direct Debit is the standard method for an agreed plan, though a one-off instalment or upfront payment can also usually be made by debit or corporate credit card where that suits your circumstances better.

If you need to speak to HMRC, prepare more detailed information, including:

• Your monthly income from employment, self-employment, property, pensions and other sources
• Your normal household and business expenditure
• Existing loans and other debts
• Savings and investments
• Assets that could potentially be sold or refinanced
• The cause of the payment difficulty
• The amount you can pay immediately
• The amount you can afford each month
• Expected changes in income or expenditure
• Other tax liabilities becoming due during the proposed arrangement

How to Set Up a Self Assessment Payment Plan Online

1. Submit the relevant Self Assessment tax return.
2. Wait for the liability to appear on your HMRC account.
3. Sign in to the HMRC online payment-plan service.
4. Complete the eligibility checks.
5. Enter your proposed monthly payment and repayment period.
6. Provide the UK bank details used for Direct Debit.
7. Review the terms, including interest.
8. Save confirmation of the arrangement and the payment schedule.

Once the plan is active, ongoing instalments and any additional payments can also be checked or made conveniently using the HMRC app rather than logging into the full online service each time.

How to Negotiate an HMRC Payment Plan by Phone

HMRC will normally ask what you can afford and why the bill cannot be paid in full. The proposal should reflect genuine disposable income after reasonable essential expenses.

• How the debt arose
• Whether the difficulty is temporary or ongoing
• What can be paid immediately
• The maximum sustainable monthly instalment
• How future tax bills will be funded
• Whether any assets or savings are available

Do not offer an instalment that is likely to fail. A shorter plan may reduce interest, but an unrealistic monthly payment can cause the agreement to default.

How Much Will You Pay Each Month?

There is no universal formula requiring every taxpayer to repay half of the remaining balance each month. HMRC considers affordability, the size of the debt, available assets and how quickly it can reasonably be cleared.

Total tax debt plus estimated interest ÷ number of monthly instalments

Example Tax Payment Plan Calculation

How Long Can an HMRC Payment Plan Last?

The arrangement should clear the debt as quickly as is reasonably affordable. Some online Self Assessment arrangements are designed for repayment within 12 months, while directly negotiated plans may be shorter or longer depending on the circumstances.

• Substantial savings are available
• Non-essential assets could be realised
• The taxpayer can borrow commercially at a sustainable cost
• Future liabilities will fall due before the old debt is cleared
• The business is continuing to accumulate unpaid tax

Does HMRC Charge Interest on a Payment Plan?

Yes. A payment plan does not normally stop late-payment interest. Interest runs from the original due date until the tax is paid.

From 6 April 2025, HMRC’s standard late-payment rate is set at the Bank of England base rate plus four percentage points. The published rate was 7.75% from 9 January 2026, but this rate can change when the base rate changes.

Because interest is calculated on the outstanding balance, paying more at the beginning or shortening the arrangement will usually reduce the total interest cost.

Illustrative Interest Example

If £10,000 remained unpaid for a full year at an unchanged illustrative rate of 7.75%, the simple annual interest would be approximately £775. In practice, interest should be lower where monthly instalments steadily reduce the balance, and the applicable rate may change during the period.

Late-Payment Penalties Under the Existing Self Assessment Rules

• 5% of the tax unpaid 30 days after the deadline
• A further 5% of the tax still unpaid six months after the deadline
• A further 5% of the tax still unpaid 12 months after the deadline

Late-payment interest is charged separately. Where the taxpayer approaches HMRC promptly and an acceptable Time to Pay arrangement is agreed, the treatment of penalties can depend on when contact was made and whether the agreement is maintained.

New Late-Payment Penalties for Making Tax Digital in 2026/27

Some sole traders and landlords required to use Making Tax Digital for Income Tax from 6 April 2026 move to a new late-payment penalty system for their 2026/27 personal tax obligations.

In the first year under the new system, a taxpayer normally has 30 days from the payment due date to pay in full or contact HMRC to agree a payment plan before late-payment penalties begin. Late-payment interest still starts from the first day the payment is late.

• No late-payment penalty where the amount is paid or an arrangement is agreed within the first-year 30-day period
• 3% of the tax owed at day 15 and 3% of the tax owed at day 30 where payment remains outstanding for 31 days or more
• An additional annual rate of 10%, calculated daily on the outstanding balance from day 31, for up to two years

The rules depend on when the taxpayer joins Making Tax Digital and the tax year to which the payment relates. Existing penalties still apply to earlier returns, including the 2025/26 return due by 31 January 2027, even where the taxpayer starts MTD on 6 April 2026.

Does a Payment Plan Prevent Penalties?

An agreed plan can protect against or pause certain late-payment penalties when the taxpayer contacts HMRC within the relevant period and follows the arrangement. It does not normally remove interest.

• No agreement is reached
• The taxpayer contacts HMRC too late
• The agreed instalments are missed
• Required returns remain outstanding
• New liabilities are not paid on time

What Happens If You Miss an Instalment?

Contact HMRC immediately. A missed Direct Debit can cause the arrangement to default, and HMRC may restart collection activity or calculate penalties as if the protection of the agreement no longer applies.

• Why the payment was missed
• Whether the problem is temporary
• What you can pay now
• What revised monthly amount is sustainable

Can You Change an Existing Payment Plan?

You may be able to ask HMRC to revise the plan where income or essential expenditure has materially changed. HMRC will reassess affordability and may ask for updated evidence.

You can normally pay the balance earlier without penalty. Early repayment reduces the amount on which future late-payment interest is calculated. Clearing a plan ahead of schedule can also be a useful step to build into broader pre-tax year-end planning, particularly if you’re hoping to start the next tax year with a cleaner position.

What If HMRC Refuses the Payment Plan?

• Reviewing the income and expenditure figures for errors
• Offering a reasonable upfront payment
• Increasing the monthly instalment where affordable
• Shortening the proposed term
• Explaining one-off circumstances with supporting evidence
• Filing any outstanding returns
• Seeking independent debt or insolvency advice where the problem is wider than one tax bill

What Happens If You Do Not Contact HMRC?

• Use a debt collection agency
• Deduct tax through wages or pension income
• Take money directly from bank or building society accounts where legal conditions are met
• Take control of goods and sell them
• Begin court proceedings
• Seek bankruptcy
• Petition to wind up a company where the debt is a company liability

HMRC does not usually report an ordinary tax debt to consumer credit reference agencies in the same way as a lender. However, court judgments, insolvency proceedings and enforcement consequences can affect access to credit and financial standing. . If matters have already reached this stage, a broader review of the options for dealing with an outstanding balance can help identify the most practical way forward before enforcement escalates further.

Can You Use a Payment Plan for Payments on Account?

A plan may include unpaid Self Assessment payments on account, but HMRC will consider the total debt and your ability to meet future instalments.

• A reduction claim changes the estimated liability because the expected tax is lower.
• A payment plan spreads a valid liability because you cannot pay it in full.

Tax Payment Plans for Sole Traders

Sole traders commonly experience payment difficulty when profits fluctuate, customers pay late or the first payments-on-account bill is larger than expected.

• Current trading income and costs
• Personal drawings and essential household spending
• Expected receipts from customers
• How ongoing tax will be reserved
• Whether Making Tax Digital obligations apply in 2026/27

Self Assessment Payment Plans for Landlords

Landlords may experience cash-flow pressure because of void periods, repairs, arrears, refinancing costs or changes in property finance tax relief.

HMRC is likely to consider rental income, personal income, cash reserves and the value and liquidity of available assets. Property ownership does not automatically prevent a plan, but HMRC may ask whether assets can reasonably be used to reduce the debt.

Payment Plans for Company Directors

A director’s personal Self Assessment debt is separate from the company’s Corporation Tax, PAYE or VAT liabilities. A personal Time to Pay arrangement does not automatically cover company debts.

Payment Plans for Employers’ PAYE and CIS

PAYE and Construction Industry Scheme debts use different online criteria from Self Assessment. Employers must generally have submitted the required PAYE and CIS returns before an arrangement can be considered.

Do not rely on historic thresholds such as a fixed £15,000 limit or 35-day application window without checking the current HMRC service. Online eligibility rules can change, and larger or more complex debts may require direct contact.

Payment Plan Versus Disclosure of Undeclared Tax

A payment plan deals with the timing of payment. It does not correct undeclared income or an inaccurate tax return.

• The Let Property Campaign for qualifying undeclared residential property income
• The Worldwide Disclosure Facility for offshore tax liabilities
• Amending an open Self Assessment return
• Making another appropriate voluntary disclosure to HMRC

Is a Payment Plan Tax Avoidance?

No. A properly agreed Time to Pay arrangement is a legitimate debt-management process. Tax avoidance involves arrangements designed to obtain a tax advantage contrary to the intention of the rules, while tax evasion involves illegal concealment or dishonesty.

Common Tax Payment Plan Mistakes

• Waiting until HMRC starts enforcement action
• Failing to file the tax return before applying
• Offering an unaffordable instalment
• Assuming interest stops when a plan is agreed
• Ignoring future payments on account
• Using a reduction claim instead of Time to Pay
• Failing to disclose other HMRC debts
• Missing Direct Debit payments without contacting HMRC
• Assuming all online arrangements have the same maximum duration
• Relying on outdated interest rates or eligibility thresholds

How to Improve the Chance of HMRC Accepting Your Proposal

1. File every outstanding return.
2. Calculate the full amount owed.
3. Prepare an accurate monthly budget.
4. Separate essential from discretionary spending.
5. Offer a meaningful upfront payment where possible.
6. Propose the highest sustainable monthly amount.
7. Explain how the difficulty arose.
8. Show how future tax will be paid on time.
9. Keep evidence supporting your figures.
10. Contact HMRC before penalties and enforcement escalate.

Tax Payment Plan Case Study

Michael, a self-employed builder, visited our Fulham office after submitting his Self Assessment tax return and realising he could not pay the full amount by the deadline. His business had experienced several delayed customer payments, leaving him short of cash even though the tax liability itself was correct. He wanted to know whether an HMRC Self Assessment payment plan could help him avoid further financial pressure.

After reviewing his tax position, we explained that a tax payment plan (also known as HMRC Time to Pay) allows eligible taxpayers to spread an outstanding Self Assessment bill over affordable monthly instalments. We helped him understand the information HMRC may request, including his income, essential expenditure and a realistic repayment proposal, while also explaining that late-payment interest normally continues until the balance is cleared.

During our discussion, Michael asked whether making small monthly payments on his own would be enough. We explained that informal payments do not create a formal Self Assessment payment plan. Taxpayers should contact HMRC promptly or use the online Time to Pay service where eligible, ensuring the arrangement is officially agreed before relying on instalments.

By the end of the meeting, Michael understood that acting early gives taxpayers more options when they cannot pay a tax bill in full. Filing tax returns on time, preparing an affordable repayment proposal and maintaining better cash-flow planning can make it much easier to manage future HMRC liabilities while remaining compliant.