HMRC Time to Pay Arrangement

Tax bills can become difficult to manage for many reasons: late customer payments, seasonal cashflow pressure, unexpected costs, a VAT bill that was not forecast properly, or a Corporation Tax liability that is larger than expected. The worst response is usually silence. HMRC expects taxpayers to engage early, explain their position clearly and make a realistic proposal.

An HMRC Time to Pay arrangement is a payment plan that allows a tax debt to be paid by instalments. It does not remove the debt and it does not normally stop interest from running, but it can help avoid more serious debt collection action where HMRC accepts that the proposal is affordable and credible.

For small businesses, limited company directors and self-employed taxpayers, preparation matters. HMRC may ask for figures, bank details, income and spending information, and a clear explanation of how future tax bills will be paid alongside the arrears. This is where an accountant can help turn a stressful tax debt into a practical action plan.

What is an HMRC Time to Pay arrangement?

A Time to Pay arrangement is an agreement with HMRC to pay overdue tax in instalments. It may apply to different tax debts, including Corporation Tax, VAT, PAYE and Self Assessment, depending on the circumstances and HMRC’s acceptance.

HMRC will usually want to know that the arrangement is affordable. If the proposed monthly payment is too low, or if the business cannot show how it will keep future tax payments up to date, HMRC may ask for more information or refuse the plan.

Which business taxes can create Time to Pay problems?

• Corporation Tax due 9 months and 1 day after the company year end for many small companies.
• CT600 Tax Return liabilities that are higher than expected after year-end accounts are prepared.
• VAT Returns where VAT collected from customers has been used for working capital.
• PAYE and payroll deductions where tax and National Insurance have not been set aside.
• Self Assessment tax bills, including payments on account for directors, landlords and sole traders.

The tax type matters because the reference numbers, payment deadlines and HMRC departments can differ. Before contacting HMRC, make sure you know exactly which tax is overdue, which period it relates to, and whether another bill is due soon.

When should you contact HMRC?

Contact HMRC as soon as you know you cannot pay in full. Waiting until enforcement letters arrive can reduce your options and make the situation feel more urgent than it needed to be.

Early contact is especially important if the business has more than one tax debt. For example, a company may have an overdue VAT balance, an upcoming PAYE payment and Corporation Tax due within the next few months. HMRC will want to understand the full picture before agreeing a plan.

What should you prepare before asking for Time to Pay?

HMRC may ask for practical evidence that your proposal is realistic. Before making contact, prepare:

• The relevant tax reference number, such as Corporation Tax UTR, VAT number, PAYE reference or Self Assessment UTR.
• The exact amount owed, including any interest or penalties already showing.
• The tax periods covered by the debt.
• Your UK bank details if a Direct Debit arrangement is needed.
• Up-to-date bookkeeping records showing income, costs, bank balances and debtors.
• A short cashflow forecast showing what the business can afford each month.
• Details of other tax bills that will become due during the proposed plan.
• An explanation of why the arrears arose and what has changed to prevent the issue repeating.

A strong proposal is specific. “We can pay something each month” is weaker than “We can pay £1,250 per month by Direct Debit while staying up to date with VAT and payroll, based on current debtor receipts and fixed costs.”

What does HMRC look for in a realistic proposal?

HMRC usually wants the debt paid as quickly as the taxpayer can reasonably afford. That means your proposal should not be based only on what feels comfortable; it should be supported by evidence of income, spending, assets, available cash and upcoming liabilities.

If a limited company owes tax, HMRC may ask whether the company can reduce the debt by using available funds, releasing assets, improving credit control, reducing non-essential spending or introducing director funds. This does not mean every director will be personally liable for company tax debts, but it does mean HMRC may challenge whether the business has done enough to reduce the arrears.

Will interest still be charged?

Yes, interest can continue to run on late-paid tax, even where a payment plan is agreed. The faster the debt is cleared, the less interest is likely to accrue. This is why a Time to Pay arrangement should be treated as a short-term recovery plan, not a long-term substitute for tax planning.

Good management accounts and cashflow forecasts can help the business understand whether it can repay faster without creating a new missed tax deadline later.

What happens if you ignore HMRC?

Ignoring HMRC letters or calls can make the position worse. HMRC may escalate collection activity if a taxpayer does not engage, refuses to pay or fails to agree an instalment plan. For business tax debts, this can include debt collection agencies, enforcement action or, in serious cases, steps that could threaten the company’s future.

If you disagree with the amount, you should still respond. A disputed liability is not a reason to ignore the debt. Instead, gather the evidence, check the figures and ask your accountant to help reconcile the account.

Common mistakes when asking HMRC for Time to Pay

• Waiting until the tax is already overdue before reviewing cashflow.
• Offering a monthly amount without checking whether future VAT, PAYE or Corporation Tax can also be paid.
• Not having accurate bookkeeping records ready.
• Forgetting about penalties and interest when calculating the total debt.
• Using VAT or PAYE deductions as working capital without a repayment plan.
• Agreeing an instalment amount that is too high and then missing the first payment.
• Not telling HMRC when circumstances change.

How an accountant can help before you contact HMRC

An accountant cannot guarantee HMRC will accept a Time to Pay arrangement, but they can help you present a clearer, more credible position. The preparation often includes checking the tax balance, reconciling returns, reviewing bookkeeping, preparing a cashflow forecast and identifying whether any future filing or payment deadlines could undermine the proposal.

For limited companies, this may include reviewing annual accounts filing, management accounts, cash flow forecasting, filing deadlines and filing reminders. A business that can show accurate numbers and a practical recovery plan is usually in a better position than one relying on estimates.

How Accusolve Accountants can support you

Accusolve Accountants supports UK businesses, small company directors, startups, non-UK resident directors and self-employed taxpayers with practical accounting, tax and compliance support. We are AAT AML supervised and focus on clear, commercially useful guidance for ambitious businesses.

We can help you:

• Check the tax balance and identify what is overdue.
• Reconcile VAT, PAYE, Corporation Tax and Self Assessment records.
• Prepare bookkeeping and cashflow information before contacting HMRC.
• Review whether future tax deadlines are likely to create further arrears.
• Plan a realistic repayment proposal based on affordability.
• Improve ongoing bookkeeping, payroll and tax planning so the issue is less likely to repeat.

If you cannot pay a tax bill on time, do not leave it until HMRC escalates the matter. A prompt review can help you understand the figures, decide what you can afford and approach HMRC with a clearer plan.