Can't Pay Your Tax Bill? How to Negotiate a Time to Pay Arrangement with HMRC

Small business owner discussing a tax bill with an accountant

By Sam | 11 August 2026

A large tax bill can put real pressure on a growing business. Maybe a customer paid late, sales dipped, or your cash is tied up in stock, wages or other bills. Whatever the reason, ignoring HMRC usually makes the situation harder.

The good news is that HMRC may agree to a Time to Pay arrangement. This lets you spread an existing tax debt through manageable instalments instead of paying everything at once.

For limited companies and growing SMEs, professional accounting support starts at £85pm+. An accountant can help you check whether the tax is correct, prepare realistic cash-flow figures and speak to HMRC about a payment plan.

What is a Time to Pay arrangement?

A Time to Pay arrangement is an agreement with HMRC to pay an overdue or upcoming tax bill over an agreed period.

It can apply to different business taxes, including:

  • Corporation Tax
  • VAT
  • PAYE and employer liabilities
  • Self Assessment tax owed by a company director
  • Other HMRC debts, depending on your circumstances

A Time to Pay arrangement does not reduce the amount of tax you owe. It simply changes when and how you pay it. Late-payment interest will generally continue to apply while the balance is outstanding.

HMRC considers each case individually. The key question is usually whether your business can pay the debt over time, even though it cannot pay the full amount immediately.

If your business has a temporary cash-flow problem but remains viable, contacting HMRC early gives you the best chance of reaching an agreement.

What happens if you do nothing?

HMRC normally wants taxpayers to make contact and agree a solution before taking enforcement action. However, it has several powers to recover unpaid tax.

Depending on the circumstances, HMRC may:

  • Send letters, make telephone calls or use a debt collection agency
  • Charge interest and late-payment penalties
  • Use enforcement agents to take control of business goods
  • Recover money directly from certain bank or building society accounts
  • Take court action
  • Pursue insolvency proceedings against a company
  • In serious cases, petition for bankruptcy against an individual

A County Court judgment is not automatically added to every unpaid tax bill. However, HMRC can use court proceedings in some cases, and a court judgment may give it further enforcement options.

For a limited company, unpaid tax can eventually contribute to winding-up or liquidation proceedings. Directors are not normally personally responsible for ordinary company debts, but personal liability can arise in specific situations, such as wrongful or fraudulent trading, misuse of company funds or certain tax-related guarantees.

These are serious escalation routes, not the normal first step. The practical lesson is simple: do not wait for bailiffs, court papers or insolvency warnings before asking for help.

Accountant discussing business finances and repayment options with a client

How to negotiate a Time to Pay arrangement with HMRC

1. File all outstanding tax returns first

HMRC will want to know exactly how much you owe. If your company accounts, Corporation Tax return, VAT return or Self Assessment return is overdue, deal with the filing position as soon as possible.

You cannot negotiate effectively if the debt is based on an incomplete or estimated return. Filing also helps you avoid adding further late-filing penalties to the problem.

If the issue involves your personal tax as a company director, make sure your Self Assessment return is filed before asking HMRC about a payment plan.

2. Check that the tax bill is correct

Before agreeing to pay a tax bill, check the figures.

For a limited company, this could mean reviewing:

  • Corporation Tax calculations
  • VAT returns and input VAT claims
  • PAYE records
  • Director’s loan account entries
  • Payroll and benefits reporting
  • Previous payments already made to HMRC

For a director’s Self Assessment bill, check your income, allowable expenses, pension contributions, dividends and tax already deducted.

An accountant can help identify whether the bill is genuinely correct or whether an amended return, appeal or payment correction is needed. A Time to Pay arrangement is for an agreed debt, so it is important not to accept incorrect figures without checking them.

3. Prepare a realistic cash-flow forecast

HMRC is likely to ask how much you can afford to pay and when you can make the first payment.

Prepare a simple forecast showing:

  • Money currently held in business bank accounts
  • Expected customer receipts
  • Regular wages and payroll costs
  • Rent, suppliers and finance payments
  • Upcoming VAT, PAYE or Corporation Tax liabilities
  • Personal drawings or dividends
  • Any savings, investments or assets
  • The amount left each month for HMRC

Be honest. Offering an instalment that looks impressive but cannot be paid is worse than proposing a lower amount based on evidence.

HMRC may expect you to use available savings or assets where it is reasonable to do so. It may also ask whether you have taken steps to reduce spending, collect overdue invoices or improve cash flow.

4. Contact HMRC as early as possible

If you know you will miss a payment, contact HMRC before the due date where possible.

Some taxpayers can arrange certain payment plans online. For example, an online Self Assessment payment plan may be available where:

  • The debt is £30,000 or less
  • The latest Self Assessment return has been filed
  • You are within the relevant period after the payment deadline
  • You do not have other HMRC payment plans or outstanding debts
  • The balance can be cleared within the available repayment period

The exact eligibility rules can change, so check the current HMRC guidance on paying tax in instalments.

For Corporation Tax and more complex business debts, you will usually need to contact HMRC directly. An accountant can help you prepare for the conversation and explain the business’s position clearly.

5. Agree an amount you can actually maintain

A Time to Pay arrangement is only useful if you keep up with the instalments.

Before agreeing, ask:

  • When is the first payment due?
  • How much will each instalment be?
  • Will the plan cover the entire debt?
  • What happens if another tax bill becomes due?
  • What interest and penalties will continue?
  • What happens if the business has a temporary setback?

HMRC may expect current and future tax returns to remain up to date while you repay the older debt. A payment plan does not usually remove the obligation to pay new VAT, PAYE, Corporation Tax or Self Assessment liabilities as they fall due.

Can you reduce the first Self Assessment payment on account?

A payment on account is an advance payment towards your next Self Assessment tax bill. It is normally based on your previous year’s liability, with instalments usually due on 31 January and 31 July.

The first January payment can feel especially large because it may include:

  • The balancing payment for the previous tax year
  • The first payment on account for the current tax year

If your current-year income is expected to be lower, you may be able to claim to reduce your payments on account. This may be relevant if your dividend income or other taxable income has fallen, your business profits are lower, or you expect more tax relief than in the previous year.

You can usually make the claim through your HMRC online account or by using form SA303. See the official HMRC guidance on reducing payments on account.

This is separate from a Time to Pay arrangement. It does not reduce tax that is already correctly due. If you reduce the payments too far and your final tax bill is higher than expected, interest may be charged on the shortfall.

If you are a company director with fluctuating dividends or income, ask an accountant to calculate the likely liability before reducing the payment.

Organised business finance folders, calculator and workspace

What if the tax debt is for VAT, PAYE or Corporation Tax?

The same basic approach applies:

  1. Make sure all returns are filed.
  2. Check the tax calculation.
  3. Prepare a cash-flow forecast.
  4. Contact HMRC promptly.
  5. Offer an affordable repayment schedule.
  6. Keep future tax obligations up to date.

VAT and PAYE debts can become urgent because they involve money collected from customers or employees. Treating these amounts as available working capital can quickly create a larger problem.

Corporation Tax also needs careful planning. A growing company may be profitable on paper but short of cash because customers have not paid yet. An accountant can help separate accounting profit from actual cash available for repayment.

For VAT-specific support, you can find a VAT accountant. For wider company tax and compliance advice, see our guide to finding a limited company accountant.

When should you speak to an accountant?

You do not have to wait until HMRC has started enforcement action. It is sensible to speak to an accountant if:

  • You cannot pay a tax bill in full
  • You have several HMRC debts
  • Your business is behind with filings
  • You are unsure whether the tax calculation is correct
  • You have received an enforcement letter
  • You have been contacted about a bank account or goods
  • You are worried about company solvency
  • You need help with a director’s Self Assessment bill

Accountant Search matches limited companies and growing SMEs with accountants who can review the figures, improve cash-flow planning and help negotiate with HMRC.

You can find an accountant in the UK by sharing a few details about your business. If the issue relates to a director’s personal return, visit our Self Assessment accountant page and submit your details through the enquiry form.

Final thoughts

A tax bill is stressful, but it is not automatically a business failure. HMRC may be willing to agree a Time to Pay arrangement when you act early, provide accurate information and propose a realistic repayment plan.

Do not promise more than your cash flow can support. Check the tax calculation, file outstanding returns and get professional advice before enforcement action begins.

Find an accountant through Accountant Search to be matched with a suitable professional for your limited company or growing SME.

This article provides general information and is not a substitute for personalised tax, legal or insolvency advice. HMRC payment plan rules and eligibility can change, so check the latest official guidance for your circumstances.