HMRC Time to Pay: what to do when the business cannot pay tax on time

A business that cannot pay a tax bill in full may be able to agree a Time to Pay arrangement with HMRC. The arrangement spreads the overdue debt, but it does not make the liability disappear. HMRC expects a realistic repayment plan, continued payment of new tax liabilities and enough financial information to test affordability.

Do not wait until enforcement starts if the business already knows it cannot pay

GOV.UK says businesses and individuals may be able to set up a payment plan for overdue tax. HMRC's September 2026 internal Time to Pay guidance says the arrangement is for customers who cannot pay in full by the due date but have the means to make agreed payments over time.

Contact HMRC when the shortfall becomes clear rather than simply allowing a Direct Debit to fail or leaving the tax unpaid without explanation. The earlier conversation gives management more time to prepare realistic numbers and distinguish a temporary working-capital problem from a deeper inability to meet liabilities.

Prepare the tax reference, UK bank details and a realistic cash-flow picture

GOV.UK says a payment-plan application needs the relevant tax reference, UK bank-account details and authority to set up a Direct Debit. HMRC can also ask for details of income and spending, or the company's income and spending where company tax is owed.

Prepare a short cash-flow forecast showing bank cash, customer receipts, payroll, rent, suppliers, existing debt and future tax. If the company has assets or savings, HMRC says it may expect those resources to be used to reduce the debt as much as possible. Management should be ready to explain why the proposed monthly instalment is the maximum affordable amount rather than a convenient round number.

HMRC expects the debt to be cleared as quickly as affordability allows

HMRC's current internal manual says Time to Pay arrangements should be tailored to the customer's ability to pay and the period should be as short as possible. Its September 2026 guidance says arrangements are typically for a few months, although longer periods can be agreed; internal guidance describes arrangements beyond 12 months as exceptional.

Do not build a business plan around receiving the longest possible term. A company that can genuinely pay £20,000 per month toward a £100,000 debt should not propose £5,000 merely to preserve cash. HMRC assesses affordability, and paying debt more slowly also increases the total interest cost.

The business must still be able to pay new taxes that fall due during the arrangement

HMRC's Time to Pay principles say the customer must have the means to make the agreed instalments and also pay other tax liabilities that become due during the Time to Pay period. This is one of the most important tests for whether the arrangement is sustainable.

For example, spreading an old £60,000 VAT debt over six months adds £10,000 per month before the next VAT, PAYE and Corporation Tax liabilities are considered. Put both the old-debt instalments and future taxes into the forecast. If the company can only pay the arrangement by creating a new tax debt, the plan is not solving the cash problem.

Time to Pay is normally operated through scheduled payments, commonly Direct Debit

GOV.UK requires UK bank details and Direct Debit authority for online payment plans, and HMRC's debt manuals describe Direct Debit as the preferred method in appropriate Time to Pay cases. Keep sufficient cash in the nominated account before every collection date.

Record each instalment against the correct HMRC liability rather than coding it as a new tax expense. The company should maintain a schedule showing opening tax debt, interest, payments made and remaining balance. That makes it clear whether the arrangement is reducing the debt at the agreed pace.

If trading changes, contact HMRC before the payment is missed

GOV.UK says there is no universal maximum payment-plan length and that HMRC can discuss changing the plan if circumstances change. If the business misses a payment, HMRC will contact it and may try to rearrange or renegotiate where possible.

Do not cancel the Direct Debit silently because a major customer paid late. Update the cash forecast and contact HMRC. Equally, if the business receives an unexpected large payment and can clear the debt faster, paying earlier reduces interest. Time to Pay should remain an active cash-management obligation, not a forgotten monthly deduction.