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What Should You Do If You Cannot Pay Your HMRC Tax Bill? A Guide to Time to Pay


Learn what a Time to Pay arrangement with HMRC is, how you can spread tax payments, when a TTP may be refused, what information you need to prepare, and what risks arise if you ignore tax debts.

What Should You Do If You Cannot Pay Your HMRC Tax Bill? A Guide to Time to Pay

One of the most stressful situations for a UK business is when tax becomes due to HMRC, but the company does not have enough money in the bank to pay the full amount.

This could relate to VAT, PAYE, CIS, Corporation Tax or Self Assessment. Perhaps clients have delayed payments, costs have increased, cash flow is blocked, or the business is going through a difficult period.

Many directors and self-employed individuals panic and make the biggest mistake: they ignore letters from HMRC, delay dealing with the problem, or hope the situation will somehow resolve itself.

In reality, if you cannot pay your taxes on time, the most important thing is to act quickly and communicate with HMRC before the situation gets worse.

One of the possible solutions may be an arrangement called Time to Pay, also known as TTP.

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What is a Time to Pay arrangement?

A Time to Pay arrangement is a payment plan agreed with HMRC, allowing overdue tax to be paid in monthly instalments instead of being paid in full as one lump sum.

In practice, HMRC may agree for the tax debt to be spread over a period of time if the proposed plan is realistic, affordable and based on the genuine financial position of the individual or company.

Important: Time to Pay does not mean that HMRC writes off your debt. The tax remains payable. The difference is that HMRC may accept payment by instalments if you can show that you intend to pay and that you have a credible plan.

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When can Time to Pay be useful?

A TTP may be useful when:

  • the business has a temporary cash flow problem;

  • clients have delayed payments;

  • you have had unexpected expenses;

  • you have built up VAT, PAYE, CIS or Corporation Tax and cannot pay everything immediately;

  • you are self-employed and cannot pay your Self Assessment bill in full;

  • the business is viable but needs time to recover financially.

A Time to Pay arrangement is most suitable where the problem is temporary, not permanent.

If the business is no longer viable, cannot pay its current debts and continues to build up tax liabilities with no realistic prospect of recovery, the situation may become much more serious and advice from an insolvency specialist may be required.

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What types of tax can be included in a Time to Pay arrangement?

Depending on the situation, a Time to Pay arrangement may be discussed for several types of tax debt, including:

  • Self Assessment;

  • VAT;

  • PAYE;

  • CIS;

  • Corporation Tax;

  • other debts owed to HMRC.

Each case is assessed based on the amount owed, the taxpayer’s history, previous behaviour towards HMRC and the genuine ability to pay.

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Why you should not ignore HMRC

If you cannot pay, ignoring the problem is the most dangerous option.

HMRC will usually try to contact you if you miss a payment. This may include letters, messages, phone contact or, in some cases, recovery action.

If you do not respond, do not contact HMRC or cannot agree a payment plan, HMRC may take more serious action to recover the debt.

These actions may include using a debt collection agency, recovering money from wages or pension income, taking action against goods, direct recovery from a bank account in certain circumstances, court action, bankruptcy proceedings or, in the case of a company, action that may lead to the business being closed down.

In other words, the problem does not disappear if you ignore it. In most cases, it becomes more expensive, more stressful and harder to control.

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How does HMRC assess a Time to Pay arrangement?

HMRC does not automatically accept every proposal.

They want to see that the plan is realistic and that the person or company can genuinely keep up with the proposed monthly payments.

To assess the situation, HMRC may ask for information such as:

  • what tax is owed;

  • the relevant tax reference;

  • the total amount owed;

  • how much you can pay immediately;

  • how much you can pay each month;

  • what income you have;

  • what monthly expenses you have;

  • whether you have savings or assets;

  • whether there are other taxes due soon;

  • for companies, what the business income and expenses look like.

For companies, HMRC may ask how the tax bill will be paid as quickly as possible and whether the company can reduce the debt by using assets, stock, vehicles, funds introduced by the director, loans or other sources of finance.

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When can HMRC refuse, or when may Time to Pay not be suitable?

A Time to Pay arrangement is not guaranteed. HMRC assesses each case based on the amount owed, tax history, taxpayer behaviour, available information and genuine ability to pay.

HMRC may refuse, or it may be difficult to agree a Time to Pay arrangement, in the following situations:

  • the required tax returns have not been submitted and the amount owed has not been clearly established;

  • you cannot demonstrate that you have a realistic payment plan;

  • you propose a monthly payment that is too low compared with your actual financial position;

  • you have savings, assets or other available resources but refuse to use them to reduce the debt;

  • the business continues to build up new tax debts without a clear plan;

  • you have had previous Time to Pay arrangements that you did not keep to;

  • you do not respond to HMRC’s questions or do not provide the information requested;

  • the business does not appear viable and cannot pay current debts as they fall due;

  • the debt is already at an advanced stage of collection and you have not communicated with HMRC in time;

  • there are serious concerns about the accuracy of tax returns, missing documents or uncooperative behaviour.

For companies, HMRC may look more closely at whether the business has assets, stock, vehicles, money due from customers or the possibility of directors introducing funds into the company. If there are resources that could reduce the debt, HMRC may expect these to be used before approving a payment plan.

Also, if the business is no longer viable and cannot pay current taxes, Time to Pay may not be the right solution. In this situation, directors must be very careful and advice from an insolvency specialist may be required.

Important: Time to Pay only works where there is a genuine intention to pay, open communication with HMRC and a realistic plan. If the problem is ignored or the agreed instalments are not maintained, HMRC may cancel the arrangement and continue debt recovery action.

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How much do you have to pay each month?

There is no fixed amount that applies to everyone.

The monthly payment depends on the specific financial position. HMRC will look at how much is available after essential expenses and fixed outgoings.

Generally, HMRC may expect a significant part of the available monthly surplus to be used towards the tax debt.

This means that it is not enough to propose a very small amount simply because it feels convenient. The amount must be affordable, but it should also show that you are making a genuine effort to clear the debt as quickly as possible.

The sooner you pay, the sooner you reduce the period of stress and, usually, the total cost of interest.

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Interest and penalties: what you need to know

A Time to Pay arrangement can help avoid tougher collection action, but it does not automatically mean that interest or penalties will stop applying.

HMRC late payment interest may continue to apply until the debt is paid in full.

From 6 April 2025, HMRC late payment interest is calculated at the Bank of England base rate plus 4%. At the time of writing, the rate listed by HMRC is 7.75% per year from 9 January 2026.

This rate can change. Therefore, before making an exact calculation or taking a decision, the latest rate should always be checked on GOV.UK.

It is important to understand the difference between interest and penalties.

Interest is the cost applied for paying tax late. Penalties are separate and may depend on the type of tax, the length of the delay, the taxpayer’s history and the specific rules that apply.

This is why it is important to contact HMRC as soon as possible, ideally before the deadline is missed or as soon as you realise that you cannot pay in full.

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Simple interest example

Let’s assume a company has a debt of £9,000 owed to HMRC and cannot pay it immediately.

If late payment interest is 7.75% per year, the approximate interest for one year would be:

£9,000 x 7.75% = £697.50

This is only a simplified estimate. In practice, interest may be calculated daily and may vary if the HMRC rate changes or if the debt is reduced through partial payments.

Important: this example does not include any penalties. Penalties may be separate and must be considered based on the type of tax and the specific circumstances.

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What should you prepare before contacting HMRC?

Before contacting HMRC about Time to Pay, it is helpful to prepare a clear picture of the situation.

For a company, prepare:

  • the amount owed to HMRC;

  • the type of debt: VAT, PAYE, CIS, Corporation Tax etc.;

  • the relevant tax references;

  • the current bank position;

  • which customers have unpaid invoices;

  • what money is expected to come in;

  • what monthly expenses the business has;

  • what other taxes will become due soon;

  • how much the company can pay immediately;

  • how much the company can pay monthly;

  • whether the director can introduce funds into the company;

  • whether there are assets that could be used to reduce the debt.

For a self-employed person, prepare:

  • the amount owed for Self Assessment;

  • your personal UTR;

  • monthly income;

  • personal and business expenses;

  • available savings;

  • other important debts;

  • how much you can pay immediately;

  • how much you can realistically pay each month.

A well-prepared plan has a better chance of being accepted than a rushed discussion with no clear figures.

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Practical example: company with an HMRC debt

Let’s say a company has £9,000 to pay to HMRC, but because several customers have delayed payments, the business cannot pay the full amount immediately.

The director reviews the position and sees that the company can pay £2,000 now and then £1,000 per month for 7 months.

Instead of ignoring HMRC, the director contacts HMRC, explains the situation, presents the company’s cash flow and proposes a realistic plan.

HMRC will assess whether the proposal is credible, whether the company can keep up with the instalments and whether the debt is being reduced as quickly as possible.

This type of approach can demonstrate cooperation and responsibility.

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What happens if you miss a Time to Pay instalment?

If you have a Time to Pay arrangement and miss an instalment, you should contact HMRC immediately.

Do not wait for them to contact you.

If the situation has changed, HMRC may, in some cases, try to renegotiate or adjust the plan. But if you simply do not pay and do not communicate, the arrangement may be cancelled and HMRC may continue debt recovery action.

A Time to Pay arrangement only works if it is respected and there is ongoing communication.

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Common mistakes when you cannot pay tax

The most common mistakes are:

  • ignoring HMRC letters;

  • not answering phone calls or messages;

  • waiting until the debt reaches debt collectors;

  • promising instalments you cannot afford;

  • failing to consider future tax liabilities;

  • paying other creditors while ignoring HMRC;

  • failing to keep cash flow records;

  • not asking for help in time;

  • continuing to build up VAT, PAYE or CIS without a clear plan.

HMRC wants to see that you are taking the debt seriously and that you have a realistic plan.

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Time to Pay for companies: directors must be careful

For company directors, tax debts owed to HMRC must be treated very carefully.

If the company has tax debts and cannot pay taxes on time, directors must assess whether the problem is temporary or whether the company may be at risk of insolvency.

It is important not to ignore the situation and not to continue building up debts without a realistic plan.

If the company cannot pay its debts as they fall due, professional advice should be sought as soon as possible. In some cases, advice from an insolvency practitioner may also be needed.

Time to Pay should not be used as a way to permanently delay a more serious insolvency problem. It is a useful tool for temporary cash flow difficulties, not for a business that can no longer realistically continue trading.

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How can an accountant help?

An accountant cannot guarantee that HMRC will accept a Time to Pay arrangement, but they can help you prepare the situation correctly.

For example, they can help with:

  • checking the amounts owed;

  • reconciling accounts;

  • identifying overdue taxes;

  • preparing a cash flow position;

  • estimating future tax liabilities;

  • organising documents;

  • explaining the available options;

  • communicating more clearly with HMRC;

  • avoiding mistakes that could make the situation worse.

For many clients, the most important thing is to understand exactly how much is owed, what deadlines apply and what amount can realistically be paid.

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Conclusion: do not ignore HMRC — act quickly

If you do not have the money to pay your HMRC tax bill, the first step is not panic and it is not ignoring the problem.

The first step is to check exactly how much you owe, which taxes are due, what you can pay immediately and what monthly amount you can realistically afford.

A Time to Pay arrangement can be a useful solution where the problem is temporary and there is a clear intention to pay.

But Time to Pay is not an automatic solution and should not be treated as a delay without consequences. It is an arrangement that must be prepared properly, justified realistically and maintained every month.

The earlier you contact HMRC and the better prepared your figures are, the better your chances of avoiding tougher collection action, additional stress and higher costs.

At DCTaxAgent, we support self-employed individuals, CIS subcontractors, limited companies and small businesses in the UK that need help with HMRC, tax debts, accounting records, VAT, PAYE, CIS, Corporation Tax and Self Assessment.

If your business is going through a difficult cash flow period, or you are unsure what needs to be paid to HMRC, we can help you understand the position and prepare the next steps.

Phone / WhatsApp: 07587 532646
Email: contact@dctaxagent.co.uk
Website: www.dctaxagent.co.uk

Disclaimer: This article is for information purposes only and does not constitute tax, legal or insolvency advice. A Time to Pay arrangement depends on the taxpayer’s specific circumstances and HMRC’s decision. HMRC late payment interest rates can change and should be checked on GOV.UK before making any specific calculation. If the business is in serious financial difficulty or may be at risk of insolvency, appropriate professional advice should be sought, including advice from an insolvency specialist where necessary.

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