If you cannot pay a tax bill in full on time, HMRC may agree a Time to Pay arrangement that lets you spread the cost over monthly instalments. It is available to individuals and businesses for most taxes, including self assessment, PAYE, VAT and corporation tax.
Interest is still charged, but an agreed arrangement can prevent further late payment penalties and enforcement action, provided you keep to it. The key is to contact HMRC before the payment is due, or as soon as you know there is a problem.
Who can use it
HMRC will generally consider Time to Pay where you genuinely cannot pay in full now but can afford to clear the debt over a reasonable period. It is not intended for people who could pay but would prefer not to. HMRC will want to understand your income, outgoings and what steps you have taken to raise the money.
You will normally need to have filed all your returns. HMRC is less likely to agree a new arrangement if an earlier one was not kept.
Setting it up online
Smaller debts can be arranged online without speaking to anyone:
- Self assessment: debts of up to £30,000, where your returns are filed and you apply within 60 days of the payment due date.
- Employers' PAYE: debts of up to £50,000.
Online plans are paid by direct debit. Larger debts, other taxes and cases that fall outside the online criteria need a phone call to HMRC.
What HMRC will ask
For a phone application, be ready to explain:
- Your reference numbers, such as your UTR, PAYE reference or VAT number.
- The amount owed and why you cannot pay it in full.
- How much you can pay now, and how much you can afford each month.
- Your income and essential outgoings or, for a business, its cash flow position.
- Whether you have savings, assets or borrowing you could use.
- How you will make sure future tax bills are paid on time.
Offer a realistic amount. An arrangement you cannot keep will be cancelled, and HMRC may then pursue the full balance.
Interest and penalties
Late payment interest runs on the outstanding balance until it is cleared, at Bank of England base rate plus 4 percent. You pay interest for the whole period of the arrangement, so a longer plan costs more. For individuals, this interest is not tax-deductible.
Agreeing an arrangement before a penalty date can prevent late payment penalties that would otherwise arise, as long as you keep to the terms. It does not remove penalties already charged, or penalties for filing late.
A worked example
A sole trader's 2025/26 self assessment shows a balancing payment of £9,000 due on 31 January 2027, plus a first payment on account for 2026/27 of £6,000 due the same day, making £15,000 in total. She can pay £3,000 immediately but not the rest.
Because the debt is under £30,000 and her return is filed, she can set up an online plan for the remaining £12,000. Paying £1,000 a month clears the tax in 12 months, with interest on top. She also needs to budget for the second payment on account of £6,000 due on 31 July 2027, which is not part of the original plan.
If her profits have fallen, she should consider whether a claim to reduce her 2026/27 payments on account is appropriate. Reducing them too far, however, results in interest on the shortfall.
Keeping the arrangement on track
HMRC expects new tax bills to be paid on time while the arrangement runs. Missing an instalment or a new liability can lead to the arrangement being cancelled. If your circumstances change, contact HMRC before a payment is missed, as arrangements can sometimes be renegotiated.
For businesses, repeated reliance on Time to Pay is a warning sign. It is worth looking at why the tax money is not available when due, and whether setting aside VAT, PAYE and corporation tax each month would avoid the problem.
What to do
- Work out your tax bills early so you know what is coming.
- If you cannot pay in full, contact HMRC before the due date.
- Use the online service if your debt is within the limits and your returns are filed.
- Propose an amount you can genuinely afford alongside your other commitments.
- Set aside money for future tax bills so the arrangement can be kept.
If you would like help preparing a Time to Pay proposal or forecasting your tax bills, book a free call.
