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

By Sam

There is a specific kind of stomach-drop that happens when you open a letter from HMRC or log into your Government Gateway account, only to see a tax bill that is significantly higher than the balance in your business bank account. For many UK small business owners, this is a moment of pure panic.

Whether it is a sudden spike in VAT, an unexpected Corporation Tax bill, or a Self Assessment payment that you didn't quite save enough for, the feeling is the same: “How am I going to pay this?”

The most important thing to know is that you are not alone, and HMRC is not necessarily the "big bad wolf" that popular culture makes them out to be: provided you talk to them. HMRC would much rather collect the tax over six months than force a business into insolvency. This is where a Time to Pay (TTP) arrangement comes in.

In this guide, we will walk you through exactly how to set up a repayment plan, what information you need to have ready, and how finding the right accountant can make the process significantly smoother.

What is a Time to Pay (TTP) Arrangement?

A Time to Pay arrangement is a formal agreement between a taxpayer (you) and HMRC. It allows you to pay your tax debt in monthly or weekly instalments over a set period, rather than in one lump sum.

The beauty of a TTP arrangement is that if you set it up before the payment deadline, HMRC will usually waive late payment penalties. However, you must keep to the plan. If you miss a payment, the arrangement can be cancelled, and those penalties will come back with a vengeance. If you want a clearer breakdown of how to avoid penalties, see MTD Penalties Explained: The Simple Guide to the New Points System.

The Cost of Delay: Understanding Interest Rates

While HMRC is often willing to be flexible with time, they aren't a free bank. They charge interest on any tax paid late.

As of late 2024 and heading into 2025, the interest rate for late tax payments is roughly 7.75% to 8%. HMRC calculates this as the Bank of England base rate plus 2.5 percentage points. While this is higher than it has been in previous years, it is still often cheaper than an unsecured business loan or an unauthorized bank overdraft.

Is Your Business Eligible?

HMRC assesses TTP requests on a case-by-case basis. They generally look for businesses that are "viable but experiencing temporary cash-flow difficulties."

To be eligible for an online payment plan (the quickest route), you usually need to meet these criteria:

• Tax Returns: All your tax returns must be filed and up to date. HMRC will not discuss a payment plan for a debt they haven't officially "seen" yet.

• Debt Amount: For VAT, you can typically set up a plan online if you owe up to £50,000. For Self Assessment, the limit is usually £30,000.

• Timeframe: You must be able to clear the debt within 12 months.

• Fresh Debt: You shouldn't have any other active payment plans or existing tax debts with HMRC.

If your debt is larger than these limits: for example, if you owe £100,000 in PAYE or Corporation Tax: you won't be able to use the automated online tool. Instead, you will need to call the HMRC Business Payment Support Service.

The Two Routes: Online vs. Phone

1. The Online Route (Self-Service)

If you meet the criteria mentioned above, the online route is the fastest. You log into your Government Gateway account, navigate to the relevant tax (VAT, Self Assessment, etc.), and look for the "Pay in instalments" option.

The system will ask how much you can pay upfront and how much you can afford each month. If your proposal fits HMRC's automated logic, you'll get an instant "Yes" and a Direct Debit will be set up.

2. The Phone Route (Negotiation)

If you owe more than the online thresholds, or if you need more than 12 months to pay, you have to call. This is where things get a bit more rigorous. An HMRC officer will conduct a financial assessment over the phone. They will ask about your income, your assets, your essential outgoings, and why you can't pay the bill right now.

The "HMRC Application Kit": What Information You Need

Before you even think about calling HMRC or clicking that "Pay in instalments" button, you need to have your "kit" ready. HMRC officers have very little patience for business owners who don't know their own numbers.

You will need:

1. Reference Numbers: Your UTR (Unique Taxpayer Reference), VAT number, or PAYE reference.

2. Total Debt: The exact amount you owe, including any interest already added.

3. The "Why": A brief, honest explanation of why the debt arose. (e.g., "A major client paid 60 days late," or "Unexpected equipment repair costs.")

4. Bank Details: For the Direct Debit.

5. A Proposal: A specific amount you can pay today, and a specific monthly amount you can afford going forward.

The Secret Weapon: The Cash-Flow Pack

If you are negotiating over the phone for a large debt, the "Why" and the "Proposal" need to be backed by data. Professional small business tax services often prepare what is known as a "Cash-Flow Pack" for their clients.

This includes:

• A 12-month cash-flow forecast: This shows exactly how much money is coming in and out of the business. It proves to HMRC that you can afford the payments you are proposing, but you cannot afford to pay it all at once.

• Management Accounts: Recent Profit and Loss statements to show the business is still healthy.

• List of Debtors: To show that you have money owed to you that will eventually help clear the tax debt.

HMRC is much more likely to agree to a longer repayment term (e.g., 18 or 24 months) if you present them with a professional, accountant-prepared cash-flow forecast.

Step-by-Step Guide to Applying for TTP

1. File Your Return: Do not wait until the payment is due. File your tax return as early as possible so you know the exact figure.

2. Assess Your Cash: Look at your bank balance and your upcoming bills (rent, payroll, suppliers). Determine the maximum you can pay as an "upfront" deposit.

3. Do the Math: Divide the remaining balance by 12. Can you afford that every month? If not, you'll definitely need to call HMRC rather than using the online tool.

4. Gather Your Evidence: If calling, have your 12-month forecast ready.

5. Make the Call/Click: Contact HMRC as soon as you realize there is a problem. Do not wait for a red "Notice of Enforcement" letter or other serious HMRC correspondence.

6. Confirm and Set Up: Once agreed, you will receive a letter confirming the plan. Set up the Direct Debit immediately and ensure there is always money in the account to cover it.

Why an Accountant is Your Best Negotiator

You might be tempted to handle HMRC yourself to save money, but in many cases, an accountant can save you far more than they cost.

• Credibility: When an accountant speaks to HMRC on your behalf, it signals that the business is taking its financial obligations seriously.

• Accuracy: Accountants know how to structure a cash-flow forecast that satisfies HMRC’s specific requirements.

• Stress Reduction: Negotiating with a tax officer can be intimidating. Let a professional handle the "tough talk."

• Long-term Planning: An accountant won't just fix the current debt; they will help you set up a tax reserve for the future so you never find yourself in this position again. This is especially vital for startup tax accounting, where cash flow is often tight.

Don't Face HMRC Alone

Facing a tax bill you can't pay is stressful, but it doesn't have to be the end of your business. By acting early and being transparent with HMRC, you can secure a Time to Pay arrangement that keeps your business running smoothly.

At Accountant Search, we specialize in matching SME business owners with the perfect local or online accountants. Whether you need help negotiating a TTP arrangement or you want to overhaul your bookkeeping to avoid future tax shocks, we can find the right expert for you. If you are also reviewing your wider options, our guide to accounting services in the UK is a useful next step.

Click here to find an accountant who can help you negotiate with HMRC today.