HMRC Time to Pay: how a payment plan works and how to ask for one

HMRC Time to Pay is a payment plan agreed with HM Revenue and Customs that lets you pay a tax bill in instalments when you cannot pay it in full. GOV.UK puts it plainly: if you cannot pay your tax bill in full, you may be able to set up a payment plan, and HMRC will check whether that plan is affordable for you.

A Time to Pay arrangement is not a loan and it does not reduce the tax you owe. It changes when you pay. Interest continues on the outstanding balance, so the total you pay is higher than the original bill.

Anyone who cannot pay a tax bill in full may be able to set up a payment plan, but HMRC decides each case on whether the plan is affordable.

What HMRC looks at

HMRC’s guidance says the plan depends on how much you owe and what you can afford to pay each month. To set one up you need:

• The reference number for the tax you owe
• UK bank account details, because payments are taken by Direct Debit
• Details of your income and spending

What HMRC may ask of companies and their directors

A company is expected to help itself first. The guidance says: “You must reduce your debt as much as possible before setting up a payment plan. You can do this by releasing assets like stock, vehicles and shares.”

It also says HMRC may ask company directors to put personal funds into the business, accept lending, or extend credit.

Which tax bills a plan can cover

GOV.UK’s guidance on payment plans is written about tax bills in general, not one tax, and it includes separate instructions for companies. What changes from tax to tax is the route: whether you can set the plan up online, and up to what amount. If your bill already includes penalties or interest, ask HMRC how they are treated in the plan, because the guidance we relied on does not set that out.

You set up a plan either through HMRC’s online service or by contacting HMRC directly. GOV.UK has a service that checks whether you are eligible to set up a payment plan online; if you are not, you speak to HMRC.

1. File the return if you have not already. HMRC needs to know what you owe, and filing late carries its own penalties.
2. Work out what you can pay now and what you can afford each month, from real cash-flow figures.
3. Use the online service on GOV.UK to check whether you can set the plan up there.
4. If you cannot, contact HMRC, explain the position and propose a plan.

The limits for setting a plan up online differ by tax. For Self Assessment, HMRC said in December 2025 that if the tax owed is more than £30,000, or a longer repayment period is needed, people can still apply but need to contact HMRC directly. We have not confirmed the current online limits for VAT, employers’ PAYE or Corporation Tax, so check the GOV.UK service, listed in the sources below, for your tax.

For VAT, HMRC says you can propose a payment plan at any time.

There is no time limit on how long a payment plan can last: HMRC says it depends on how much you owe and what you can afford to pay each month. The cost is the interest that continues to accrue on the balance while you pay.

HMRC’s late payment interest rate is 7.75% from 9 January 2026. It is set at the Bank of England base rate plus 4%, so it moves with the base rate. In HMRC’s own words, “Paying your debt quicker means you’ll pay less in total because you’ll pay less interest.”

On VAT there is a second effect. Late payment penalties normally start once a VAT bill is more than 15 days overdue, at 3% of the VAT owed at day 15. HMRC says that if it agrees a Time to Pay arrangement with you, it can mean lower, or no, late payment penalties. Interest still applies to the balance during the arrangement.

If a bill stays unpaid and no plan is agreed, HMRC can take enforcement action. GOV.UK lists using debt collection agencies, taking goods, taking money from bank accounts in England, Wales and Northern Ireland, going to court, and closing down your company if the tax is a business tax.

Free debt advice is also available. In Northern Ireland, GOV.UK points to Advice NI.

A plan ends when the balance and the interest on it have been paid, and that bill is then settled. The plan covers the debt it was set up for. Returns and tax bills that fall due while you are paying still have to be filed and paid, so a plan that takes every spare pound leaves nothing for the next deadline.

If your income drops or rises while the plan is running, tell HMRC. Whether a plan can be changed or extended is HMRC’s decision. If you find you can afford more, paying the balance down faster reduces the interest you pay in total.

• Put the next VAT, PAYE or Corporation Tax bill into your cash-flow forecast before you agree a monthly figure.
• Set money aside for future tax as you earn it, so the plan is a one-off.
• Check the Direct Debit date against when your customers usually pay you.

Time to Pay keeps the debt with HMRC and spreads it; a tax loan pays HMRC in full by the deadline and leaves you repaying a lender. Neither is free, and neither is always the better choice. The loan route is covered in our guides to VAT loans and Corporation Tax loans.

Time to Pay is usually the better choice when affordability is the real problem; a loan can be the better choice when the business is sound and the issue is timing.

Time to Pay tends to fit when

• You need longer to pay than a short-term lender would offer
• HMRC’s interest would cost less in total than a loan’s interest and fees
• The business would struggle to meet a lender’s criteria or its fixed repayments

A loan tends to fit when

• The business is profitable and can comfortably afford fixed monthly repayments
• You want the bill paid by the deadline, so no tax is overdue
• HMRC has asked the company or its directors to consider lending first

If you cannot afford the repayments on either route, do not borrow. Speak to HMRC, your accountant and, if you need it, a free debt adviser. Whichever route you lean towards, put both total costs in pounds side by side, using the approach in our guide to comparing lender offers.

The first mistake to avoid is waiting until the bill is overdue and HMRC is chasing it. You can contact HMRC as soon as you know you cannot pay in full, and a plan you propose is easier to stand behind than one agreed under pressure. The others are about the figures:

• Offering a payment you cannot keep to. HMRC checks the plan against your income and spending, so base the figure on real cash flow, including a slow month.
• Choosing the longest plan because the monthly payment looks small. Interest continues on the balance, so a longer plan costs more in total.
• Leaving the return unfiled. HMRC needs to know what you owe, and late filing carries its own penalties.
• Treating the plan as a discount. It changes when you pay, not how much tax you owe.
• Deciding on the monthly payment alone. Whether you stay with HMRC or borrow, compare the total cost in pounds over the whole period.

Have the figures that show what you owe, what you can pay today and what you can afford each month. A short checklist:

• Your tax reference number and the amount and due date of the bill
• UK bank details for the Direct Debit
• Up-to-date income and spending figures, or a cash-flow forecast for a company
• A monthly payment you are confident you can keep to
• What you have already done to reduce the debt, such as releasing stock or other assets
• For company directors, whether personal funds or lending are realistically available, because HMRC may ask

Capzy is a credit broker, not a lender, and is paid by the lender. If you want to see what a loan would cost before you decide, you can check your funding options with a soft search that does not affect your credit score; a full application to a lender may involve a hard search, and any offer is subject to status and lender criteria.

We cannot arrange Time to Pay for you, since that is between you and HMRC, and we do not give tax advice. Our other business finance guides cover the funding side in more detail.