How HMRC Time to Pay Arrangements Help You Spread Tax Payments

What Is Time to Pay?

Time to Pay is HMRC’s answer for taxpayers who cannot pay their tax on time, allowing a debt to be settled through agreed instalments rather than in one lump sum. It is not a tax reduction, loan or cancellation of the liability. The full tax remains payable, normally with late-payment interest added until the outstanding balance is cleared.

An arrangement usually records:

• The tax debts included in the agreement
• Any payment required immediately
• The amount and frequency of instalments
• The proposed repayment period
• The payment method, commonly Direct Debit
• The requirement to keep future returns and tax payments up to date

HMRC aims to agree payments that are affordable while expecting the liability to be cleared as quickly as reasonably possible.

How Does Time to Pay HMRC Work?

To use Time to Pay HMRC, the taxpayer must establish how much is owed and explain why the full amount cannot be paid by the statutory deadline. HMRC then assesses whether the proposed instalments are realistic and whether a formal arrangement is appropriate.

1. Submit any outstanding tax return or declaration.
2. Confirm the total debt shown on the HMRC account.
3. Check whether an online arrangement is available.
4. Prepare income, expenditure, savings and asset information.
5. Propose an affordable repayment amount.
6. Agree the instalment dates and payment method.
7. Maintain the agreement and pay new liabilities on time.

Ongoing instalments can often be tracked and paid conveniently through the HMRC app once the arrangement is up and running, rather than needing to log into the full online account each time.

Where the online service is unavailable, the taxpayer usually needs to contact HMRC directly. HMRC may ask detailed questions before accepting, rejecting or revising the proposal.

Who Can Use HMRC Time to Pay?

Time to Pay may be considered where a taxpayer has a genuine tax debt that cannot be paid in full but can be cleared through sustainable instalments.

• Self Assessment taxpayers
• Sole traders and freelancers
• Landlords
• Business partners
• Company directors with personal tax debts
• Limited companies owing Corporation Tax
• VAT-registered businesses
• Employers owing PAYE or National Insurance
• Contractors and employers with CIS liabilities

Each tax and taxpayer is considered separately. A personal arrangement does not automatically cover a company’s liabilities, even where the individual is the company’s director.

Online Self Assessment Time to Pay Eligibility

Eligible Self Assessment taxpayers may be able to set up a Self Assessment payment plan with HMRC online without speaking to an HMRC adviser. HMRC currently promotes the self-service route for qualifying Self Assessment bills of up to £30,000.

The relevant return must be filed before an arrangement can be created. The online service also checks factors such as:

• The amount owed
• Whether returns are outstanding
• Whether other HMRC debts exist
• Whether another payment arrangement is already active
• The requested repayment period
• Whether the plan can be paid by Direct Debit
• How recently the payment became due

HMRC’s digital service makes the final eligibility decision. Failure to qualify online does not necessarily prevent a directly negotiated arrangement.

What If the Tax Bill Exceeds £30,000?

A taxpayer who owes more than £30,000 can still ask HMRC for more time. The arrangement will normally need to be discussed directly rather than created through the online self-service process.

What If You Need More Than 12 Months?

Some online Self Assessment plans are designed for repayment within 12 months. HMRC’s general guidance states that there is no universal time limit for every payment plan. The length depends on the debt and what the taxpayer can afford each month.

When Should You Request Time to Pay Tax?

Request Time to Pay tax as soon as you know the full liability cannot be paid. Do not wait for the debt to become several months overdue.

• File outstanding returns
• Check that the tax calculation is correct
• Prepare a realistic household or business budget
• Consider whether any payment can be made immediately
• Discuss future liabilities with HMRC
• Reduce the risk of avoidable enforcement action

A request is not an agreement. Until HMRC accepts the proposal, the original liability remains due.

Information HMRC May Ask For

• The tax reference and type of liability
• The total amount owed
• The cause of the payment difficulty
• Monthly employment, trading, rental and pension income
• Essential household or business expenditure
• Existing loans and creditor payments
• Cash in bank accounts
• Savings and investments
• Property, vehicles, stock and other assets
• The amount available as an initial payment
• The affordable monthly repayment
• Future tax bills becoming due

How HMRC Decides What You Can Afford

HMRC considers disposable income after reasonable essential costs. It does not use one fixed repayment formula for every taxpayer.

• Whether the financial difficulty is temporary or ongoing
• The reliability of future income
• The level of non-essential spending
• Available savings and investments
• Assets that could reasonably be sold or refinanced
• The taxpayer’s previous compliance history
• The ability to meet future tax liabilities
• Whether the proposal clears the debt within a reasonable period

How Much Will Monthly Instalments Be?

A simple starting point is the debt divided over the proposed number of instalments, with interest added while the balance remains outstanding.

Illustrative monthly principal payment = outstanding tax ÷ number of months

Worked Time to Pay Example

Late-payment interest is calculated separately, so the final amount paid will usually be higher than the original tax balance.

How Long Can a Time to Pay Arrangement Last?

HMRC states that there is no single time limit applying to every payment plan. Duration depends on the amount owed and the taxpayer’s affordable monthly payment.

Longer plans may be harder to agree where:

• The taxpayer has accessible savings
• Assets can reasonably be sold
• The proposed spending contains substantial discretionary costs
• New tax debts are continuing to accumulate
• The business is not financially viable
• The taxpayer has repeatedly defaulted on earlier arrangements

Does HMRC Time to Pay Stop Interest?

No. Late-payment interest normally continues from the original due date until each amount is paid. Agreeing an arrangement manages collection but does not make the tax interest-free.

Since 6 April 2025, the standard HMRC late-payment interest formula has been the Bank of England base rate plus four percentage points. The actual percentage can change when the base rate changes, so taxpayers should check HMRC’s current published rate.

Does Time to Pay Prevent Late-Payment Penalties?

A properly agreed and maintained arrangement may prevent or pause certain late-payment penalties, depending on the applicable penalty system and when HMRC was contacted.

It does not automatically remove:

• Interest charged from the original due date
• Late-filing penalties
• Penalties already incurred before the arrangement
• Penalties arising after the plan is broken
• Penalties on liabilities not covered by the agreement

Existing Self Assessment Late-Payment Penalties

For Self Assessment liabilities within the existing system, penalties can normally be charged at:

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

Interest is additional to these penalties. Filing penalties can also apply where the return itself was submitted late.

Time to Pay and Making Tax Digital Penalties in 2026/27

Some sole traders and landlords required to use Making Tax Digital for Income Tax from 6 April 2026 enter the newer late-payment penalty system for the tax year in which they join MTD.

For taxpayers in their first year under the new system, HMRC provides a 30-day period to pay or approach HMRC for an arrangement before a late-payment penalty applies. Interest still runs from the original due date.

The increased penalty rates can include:

• 3% of the tax outstanding at day 15
• A further 3% of the amount outstanding at day 30
• An annual penalty rate of 10%, calculated daily from day 31

Current penalties continue to apply to earlier tax years. A taxpayer joining MTD from April 2026 remains subject to the existing rules for the 2025/26 return due on 31 January 2027.

Self Assessment Time to Pay

Self Assessment Time to Pay can help where an individual cannot pay a balancing payment, payments on account or another amount included in the Self Assessment statement.

1. File the relevant return.
2. Check the tax calculation.
3. Review whether payments on account are correct.
4. Identify any amount that can be paid immediately.
5. Forecast the next January or July payment.
6. Prepare a sustainable proposal.

A payment plan and a claim to reduce payments on account are different. Payments on account should only be reduced where the expected liability has genuinely fallen. Time to Pay is used where the liability is correct but cannot be paid in full.

Time to Pay for Sole Traders

Sole traders may need support where customers pay late, profits fluctuate, unexpected costs arise or the first January balancing payment and payment on account create a larger bill than expected.

Time to Pay for Landlords

Landlords may face difficulty after void periods, rent arrears, emergency repairs, refinancing or an unexpected increase in taxable property profit. HMRC may consider rental income, employment income, savings and property assets.

Time to Pay for Limited Companies

A limited company can ask HMRC to spread Corporation Tax, PAYE, VAT or other business tax debts. The company must normally demonstrate that it can remain viable and meet both the proposed instalments and future tax obligations.

• Why the company cannot pay
• What caused the cash-flow problem
• Whether customers owe the company money
• Whether directors or connected parties owe money to the company
• What assets can be released
• How current trading will fund the arrangement
• What action is being taken to prevent new arrears

Time to Pay for VAT

VAT payment plans can be considered where a business cannot pay the amount due. The business should still submit the VAT return on time. Failure to file and failure to pay are separate compliance issues.

Time to Pay for PAYE and CIS

Employers may ask HMRC to spread PAYE, National Insurance and Construction Industry Scheme debts. All required payroll and CIS submissions should be brought up to date before approaching HMRC.

What Happens If You Miss an Instalment?

Contact HMRC immediately. Its guidance says it will ask why the payment was missed and, where possible, try to rearrange or renegotiate the plan.

• Why the instalment failed
• Whether the problem is temporary
• What can be paid immediately
• Whether the existing monthly amount is still affordable
• When normal payments can restart

Can a New Tax Bill Be Added?

HMRC states that taxpayers should contact it if another tax bill cannot be paid. It may be possible to include the new liability in the payment plan, but HMRC will normally reassess affordability.

Why HMRC May Refuse Time to Pay

• The proposed instalments are unrealistically low
• Tax returns remain outstanding
• The taxpayer has sufficient accessible funds
• Assets can reasonably be used to pay the debt
• The plan does not address future tax bills
• The business appears unable to remain viable
• Earlier arrangements have repeatedly failed
• The information provided is incomplete or inconsistent

What Happens Without an HMRC Arrangement?

• Debt collection agencies
• Deductions from wages or pensions
• Direct recovery from bank or building society accounts where conditions are met
• Taking control of goods
• Court proceedings
• Bankruptcy action
• Winding-up proceedings against a company

If matters have already progressed this far, a wider review of the practical options for tackling an outstanding balance can help identify the most sensible next step before enforcement escalates further.

Time to Pay Versus a Budget Payment Plan

Neither of these arrangements applies where HMRC actually owes you money rather than the reverse recovering an overpayment from a previous year follows an entirely separate process.

Common Time to Pay Mistakes

• Assuming an application is automatically accepted
• Waiting for enforcement action before contacting HMRC
• Failing to submit the relevant return
• Offering an unsustainable monthly amount
• Assuming interest stops after agreement
• Ignoring future tax liabilities
• Confusing Time to Pay with a Budget Payment Plan
• Reducing payments on account solely because of cash-flow difficulty
• Missing an instalment without contacting HMRC
• Relying on outdated repayment limits or interest rates

How to Prepare a Credible Time to Pay Proposal

1. File every outstanding return.
2. Check that HMRC’s balance is correct.
3. List all taxes and due dates.
4. Prepare accurate monthly income and expenditure figures.
5. Identify available savings and assets.
6. Offer an immediate payment where affordable.
7. Calculate the highest sustainable monthly instalment.
8. Explain how future tax will be funded.
9. Keep evidence supporting the proposal.
10. Contact HMRC before the position deteriorates.

Where you can offer an upfront payment as part of the proposal, this can usually be made by debit card or, in some cases, a corporate credit card, which may strengthen the credibility of your plan.

Final Guidance on Spreading Tax Through Time to Pay

Time to Pay may provide valuable breathing space where a correct tax bill cannot be settled in full. The best chance of a workable arrangement comes from acting early, filing all outstanding returns, checking the balance and proposing instalments supported by accurate financial information.

An HMRC Time to Pay arrangement does not make tax interest-free and does not automatically protect against every penalty. Once agreed, maintain the payments, keep new liabilities up to date and contact HMRC immediately if circumstances change. Clearing an arrangement ahead of schedule, where possible, is also worth factoring into any broader pre-tax year-end planning as you look ahead to the following year’s obligations.

Time to Pay Case Study

Andrew, the owner of a small marketing agency, visited our Farringdon office after receiving a larger-than-expected Self Assessment tax bill that he could not pay by the deadline. While his business remained profitable, several clients had delayed payment, leaving him with temporary cash-flow difficulties. Concerned about HMRC interest, penalties and possible enforcement action, he wanted to know whether a Time to Pay arrangement could help.

After reviewing Andrew’s financial position, we confirmed that the tax liability was correct but that paying it in full immediately would place unnecessary pressure on his business. We helped him prepare realistic income and expenditure figures, assess what he could afford each month and understand the information HMRC would expect before considering a payment plan. We also explained that although Time to Pay can spread tax payments over an agreed period, late-payment interest normally continues until the balance is cleared.

During the discussion, Andrew realised that delaying contact with HMRC would only increase the risk of additional costs. By approaching HMRC early with a credible repayment proposal, he significantly improved the likelihood of reaching an agreement.

By the end of the consultation, Andrew had a practical repayment strategy, a clearer understanding of his ongoing tax obligations and greater confidence in managing future cash flow.