Could my company get a Time to Pay arrangement with HMRC?

What is a Time to Pay arrangement?

Time to Pay is the name HMRC uses for a payment plan. Instead of clearing an overdue tax bill in one go, the company pays it off in monthly instalments over an agreed period.

HMRC's guide to setting up a payment plan says you may be able to set up a payment plan to pay your overdue tax bill in monthly instalments. You can start through HMRC's online service or by contacting HMRC directly. Either way, it comes down to money the company already owes and what the company can realistically afford.

HMRC's overview page adds that HMRC will check if a payment plan is affordable for you, and if you cannot agree a payment plan with them, they will ask you to pay the amount you owe in full. So the plan is something the company proposes and HMRC agrees to. It is never automatic.

What does HMRC look at before agreeing?

For a limited company, the guidance sets out what HMRC expects quite clearly. HMRC will ask how you will pay your tax bill as quickly as you can, and it will ask questions about your proposal to make sure it is realistic and affordable.

There is also an expectation that the company has done what it can first. The guidance says you must reduce your debt as much as possible before setting up a payment plan, and gives releasing assets like stock, vehicles and shares as examples. It adds that HMRC may ask company directors to put personal funds into the business, accept lending or extend credit.

The wording is that HMRC may ask, not that it will require any of these in every case. The question may still come up, and it is better to have thought about your answer before the call than during it.

What should you have ready before you contact HMRC?

The guidance gives two lists: what you need to set up a plan, and what to tell HMRC if you cannot set one up online. The table combines them into one checklist.

What to have ready	Why it matters
The relevant reference number for the tax you cannot pay	HMRC needs to know exactly which balance the plan covers, and the number is usually on any letter HMRC has sent
UK bank account details	You must be authorised to set up a Direct Debit from the account
The company's income and spending	This is how HMRC tests whether your offer is affordable
Other taxes the company needs to pay	A plan for one tax can fall apart if another bill is about to land
Whether you can pay in full	HMRC asks this if you cannot set up the plan online, so be clear about what is and is not possible
A monthly figure you can keep to	This is your proposal, and it should come from a forecast rather than a guess

The table draws on HMRC's two lists. The last row takes the most preparation. A short cash flow forecast, built honestly from the bank statements and the order book, shows what the company can pay each month after wages, suppliers and the taxes that keep falling due. That is the figure to take into the conversation.

How long can a plan last, and what if things change?

HMRC's page on how much you will pay says there is no time limit on how long a payment plan can last. It depends on how much you owe and what you can afford each month. Paying quicker means paying less in total, because you pay less interest.

Plans are not fixed for ever either. The same page says you should contact HMRC if anything changes that could affect the plan, and that you can make it longer or shorter. If you cannot pay another tax bill, you may be able to add it to the existing plan.

What mistakes are worth avoiding?

One mistake is waiting, and treating a payment plan as a last resort to ask for only once every other option has gone. For VAT at least, HMRC's guidance points the other way. Its page on late VAT payments says you should contact HMRC as soon as possible if you are having difficulty paying, and that you can propose a payment plan at any time, which could mean lower or no penalties.

The timing matters because VAT penalties build in stages. HMRC's guidance says that to avoid the penalties that apply from day 16, you should pay in full or ask for Time to Pay between days 1 and 15, and that asking on or up to day 30 is the way to avoid the higher penalties from day 31. If HMRC agrees an arrangement, the guidance says it can mean lower, or no, late payment penalties. Asking later can still help, but some penalties may already have been charged by then.

Another is agreeing to a figure the company cannot keep. It is tempting to offer whatever ends an uncomfortable phone call. The guidance on VAT is clear that if you do not keep to the conditions of a Time to Pay arrangement, it may be cancelled, and HMRC would then charge the late payment penalties as if the arrangement never existed. A smaller monthly figure you can keep is worth more than a larger one you cannot.

A third is treating a plan as a sign of failure. HMRC's own guidance describes Time to Pay as flexible and adapted to the specific financial circumstances of an individual or business. Asking for one is an ordinary way of dealing with a timing problem, and it keeps the company in contact with HMRC rather than out of it.

What happens if a payment is missed?

HMRC's page on how much you will pay says that if you miss a payment, HMRC will contact you to find out why and, where possible, will try to rearrange or renegotiate the plan with you.

That is reassuring, but it is not a reason to miss one. If you can see a payment will be short, the better course is to contact HMRC before the date, explain what has changed and propose an adjusted figure. A record of every call and letter, with dates and names, makes that conversation much easier.

When is this not the answer?

A payment plan works when the company has a timing problem: the money is coming, just not fast enough to clear the arrears in one payment. It is less suitable when the business cannot cover its current bills as well as the old ones.

If the company is struggling to pay its bills as they fall due, or its debts exceed its assets, a payment plan may not be the right tool. In that situation directors should speak to a licensed insolvency practitioner.

If you think the tax figure itself is wrong, an accountant or tax adviser is the right person to check it before you agree to pay it in instalments. If court papers have arrived, speak to a solicitor.

And if the company can pay the balance in full today without putting wages or suppliers at risk, that is usually the simplest answer.

Where can you get help preparing the numbers?

Most of the work in a Time to Pay request happens before anyone picks up the phone. Knowing what the company owes, what it can afford each month and what else is due in the next few months is what turns a difficult call into a sensible one.

If you would like a calm, confidential look at the figures before you speak to HMRC, you can book a confidential consultation. We can help you build the forecast, set out a realistic proposal and tell you when it makes sense to speak to a regulated professional as well. You can read more about our business recovery work.