If you’re struggling to meet your tax obligations on time, you’re not alone. Many individuals and businesses face unexpected financial difficulties that affect their ability to pay HMRC in full and on time.
Fortunately, HMRC offers a flexible solution known as the Time To Pay (TTP) arrangement. This arrangement allows you to spread your tax payments over a period you can afford.
But qualifying for and securing a TTP requires a clear understanding of the process, criteria, and HMRC’s expectations. This comprehensive guide will walk you through everything you need to know.
What Is an HMRC Time To Pay Arrangement?
A Time To Pay arrangement is an agreement with HMRC that allows a taxpayer, whether an individual or business, to pay their tax debt in manageable instalments rather than in a lump sum.
The purpose of this arrangement is to help those who are temporarily unable to pay due to financial hardship but are otherwise willing and able to meet their tax obligations.
Time to Pay plans typically run over 12 months, although longer periods may be considered in certain cases. These arrangements can cover a variety of tax types including Self Assessment, VAT, PAYE, and Corporation Tax.
It’s important to note that while interest may still apply, entering a TTP can help avoid late payment penalties and serious enforcement actions. The sooner you contact HMRC about a potential issue, the better your chances of securing an agreement.
Who Is Eligible for a Time To Pay Agreement with HMRC?
Before applying for a Time to Pay agreement, it’s essential to understand whether you meet HMRC’s eligibility criteria. While there is no universal rule, certain conditions must be satisfied to proceed.
Main Conditions for Eligibility
To qualify for a TTP agreement, HMRC generally expects you to:
- Be unable to pay your tax bill in full by the deadline
- Show that your financial difficulty is temporary
- Have filed all due tax returns
- Propose affordable and realistic repayment terms
- Not have an existing Time to Pay arrangement in place
Additional criteria may include:
- Demonstrating a history of compliance with previous HMRC obligations
- Proving your business is still viable
- Willingness to use available savings or assets to reduce the debt
Failure to meet these conditions may result in your application being rejected.
Can Individuals and Businesses Both Apply for TTP?
Yes, both individuals and businesses are eligible to apply for a Time to Pay arrangement. For individuals, this often involves Self Assessment tax debts. Businesses, on the other hand, may need help managing arrears on Corporation Tax, PAYE, or VAT.
Whether you are a sole trader, limited company, or a director of a company, HMRC will evaluate your financial situation, the type and amount of tax owed, and your payment history before granting approval.
For businesses, directors may also be asked to use personal funds or raise capital to show their commitment to repayment.
What Types of Tax Debt Can Be Included in a TTP Arrangement?
TTP arrangements are designed to cover a wide range of tax liabilities. HMRC allows both individuals and companies to consolidate various tax debts into a single repayment plan provided the debts are declared and all returns are up to date.
Eligible Taxes May Include
- Self Assessment tax
- Corporation Tax
- VAT (with certain restrictions)
- PAYE and National Insurance contributions
- Simple Assessment tax
Specific Conditions by Tax Type
- Self Assessment: Debt must be under £30,000, return filed, and within 60 days of the payment deadline.
- VAT: Must not exceed £100,000, and the debt must relate to periods starting in 2023 or later.
- PAYE: Debt must be under £100,000 and not older than five years.
- Simple Assessment: Amount owed must be between £32 and £50,000.
It’s important to note that VAT debts under the Cash Accounting or Annual Accounting Schemes are not eligible for online TTP.
How Do You Set Up a Time to Pay Plan with HMRC?
Setting up a TTP with HMRC involves different methods depending on the type of tax you owe and the size of the debt. Some arrangements can be set up online, while others require direct communication with HMRC.
Steps to Set Up a Plan:
- Visit the HMRC website and check if your tax type is eligible for online setup.
- Make sure you have:
- Your Unique Taxpayer Reference (UTR) or VAT/PAYE reference
- UK bank account details for Direct Debit setup
- A clear summary of income and expenditure
- Details of any missed payments
- Apply online if eligible. If not, call HMRC to discuss options.
Online tools are typically available for Self Assessment, VAT, PAYE, and Simple Assessment debts under specific thresholds.
How Long Is a TTP?
Most Time to Pay arrangements last up to 12 months, which aligns with HMRC’s preference to recover debts quickly. However, the actual duration depends on your financial situation and ability to repay.
For businesses with higher debts, particularly over £100,000, the arrangement might last longer, but it must still reflect affordability.
In rare cases, TTPs may extend to 24 or 36 months, especially for Simple Assessment or larger company liabilities. Regardless of the term, the key is to agree on realistic payments and stick to them consistently.
What Happens If You Need to Call HMRC Instead?
If you’re ineligible for online application or your situation is more complex, you’ll need to call HMRC directly. This is often required for larger debts, multiple tax types, or if you’ve had previous arrangements.
What to Expect During the Call:
- You’ll be asked to explain why you cannot pay in full
- HMRC will assess your monthly income and expenses
- You’ll need to propose a monthly repayment figure
- Expect questions on outstanding returns and previous debts
- HMRC may request that you use savings or assets to reduce the debt
Being honest and prepared with documentation will improve your chances of approval.
What Information Do You Need to Prepare Before Contacting HMRC?
HMRC expects a full and transparent overview of your financial situation during your Time to Pay application. Be ready with the following:
- Your Unique Taxpayer Reference (UTR) or business tax ID
- Your UK bank account details
- Income and expenditure details including rent, utilities, and food
- Any previous missed payments
- Any existing tax debts or plans
- Savings, investments, or assets that could be used to pay part of the debt
If you’ve received independent financial advice, a Standard Financial Statement will also be accepted by HMRC as supporting documentation.
How Much You’ll Pay?
The amount you’re expected to pay each month under a TTP depends on your disposable income after covering essential living or business costs.
Typically, HMRC will expect around 50% of your remaining income to be allocated toward your tax debt. If you receive a pension, the income from it will be considered, although your pension pot won’t be counted as savings.
You can propose higher repayments to clear the debt faster and reduce interest costs. However, never over-promise, an unaffordable plan risks default, which can lead to enforcement action.
How Can You Successfully Negotiate a Time to Pay (TTP) Arrangement with HMRC?
Negotiating a Time to Pay plan successfully requires preparation, honesty, and often the help of a financial expert. Before speaking to HMRC, ensure your financial documents are in order and clearly demonstrate that the debt is repayable over time.
Tips for a Successful Negotiation:
- Prepare realistic cash flow forecasts
- Offer a repayment plan that balances speed and affordability
- Use a Standard Financial Statement if available
- Be transparent about any savings or assets
- Avoid offering payments you cannot sustain
Sometimes, it’s beneficial to have a professional advisor or licensed insolvency practitioner negotiate on your behalf. They can help present a stronger case and increase the chance of approval.
What Happens If You Cannot Pay Your Tax Bill on Time?
Failing to pay your tax bill without contacting HMRC can trigger serious consequences. HMRC monitors payment behaviour and responds quickly to non-compliance.
Potential Actions by HMRC:
- Engage debt collection agencies to recover money
- Deduct payments directly from wages or pensions
- Seize assets and auction them
- Take money directly from bank accounts
- Initiate court proceedings or issue a winding-up petition
- Charge interest and penalties on the unpaid amount
These actions can escalate quickly if no communication is made. Always notify HMRC before missing a deadline to avoid harsher consequences.
How Much Time Will HMRC Give You to Repay Your Tax Debt?
There’s no fixed duration for a Time to Pay arrangement. HMRC prefers shorter terms, usually within 12 months, but the actual time granted will depend on your debt level, financial condition, and proposed affordability.
If you can demonstrate that you need more time and present a strong financial case, HMRC may consider longer plans.
However, they are cautious with high-risk or non-compliant taxpayers. A proactive approach and clear evidence of viability are essential.
Can HMRC Refuse or Cancel a Time To Pay Arrangement?
Yes, HMRC can refuse your TTP application if they believe your repayment proposal is not affordable or sustainable. They can also cancel an existing agreement if you miss payments, withhold information, or if new evidence emerges.
What Happens If Time To Pay Is Rejected?
If your proposal is rejected, here’s what may happen:
- HMRC may ask for larger monthly repayments
- They could request you liquidate business assets
- Directors may be asked to use personal funds
- You may be offered alternative solutions
- Enforcement action such as court proceedings or business closure may follow
In some cases, especially if your company is near insolvency, other routes like administration or a Company Voluntary Arrangement (CVA) might be more appropriate.
Conclusion
The HMRC Time to Pay arrangement is a valuable option for individuals and businesses facing temporary financial hardship. It offers breathing space, protects against penalties, and can help maintain positive relations with HMRC.
But it’s not a free pass, HMRC expects full transparency, timely payments, and a demonstrated willingness to meet obligations.
Whether you’re a sole trader or a company director, approaching HMRC with a solid, realistic proposal is the key to securing a Time to Pay plan that works for everyone.
FAQs About Time To Pay
Can a time to pay arrangement cover multiple tax types at once?
Yes, HMRC allows multiple tax debts like VAT, PAYE, and Corporation Tax to be included in a single Time to Pay plan.
Does HMRC charge interest on time to pay arrangements?
Yes, interest is applied, but entering a TTP early can prevent additional late payment penalties.
Can directors be asked to use personal funds for company TTPs?
Yes, HMRC may expect directors to contribute personal assets or funds to reduce company tax debts.
How much should a company realistically offer to repay monthly?
Typically, HMRC expects about 50% of your disposable monthly income or surplus business cash flow.
Does a TTP arrangement affect business credit or lender confidence?
Yes, some lenders view TTPs as a financial red flag due to HMRC’s preferential creditor status in insolvency.
Is it possible to amend or extend a TTP plan later?
Yes, if your financial situation changes, you can request an extension or adjustment to your plan.
What alternatives exist if a TTP application is rejected?
Options include formal insolvency solutions like administration, CVA, or business restructuring plans.
