HMRC Time to Pay: how VAT payment plans work
HMRC Time to Pay is a payment plan that lets a business pay a tax bill it can’t pay in full in monthly instalments. For VAT, a company can set one up online if it owes £100,000 or less, and HMRC checks that the plan is affordable before agreeing it.
This guide explains who qualifies, how to set a plan up, what HMRC asks, what it costs in interest and penalties, and when paying HMRC in full with a VAT loan is the better option.
What is an HMRC Time to Pay arrangement?
A Time to Pay arrangement is an agreement with HMRC to pay tax you owe in instalments, usually by monthly Direct Debit. HMRC calls it a payment plan. It is flexible: HMRC adapts it to the business’s finances, and it can cover the tax, penalties and interest you owe.
Time to Pay is not a loan and HMRC doesn’t have to agree to it. HMRC checks whether a plan is affordable. If you can’t agree one, HMRC will ask you to pay the amount you owe in full.
Did you know? You can fund your VAT bill
A VAT loan pays HMRC in full and on time, and your company repays over three months. Decisions within 24 hours, for VAT bills from £5,000 to £15 million.
Can my company set up a VAT payment plan online?
HMRC’s online service lets a company or partnership set up a VAT payment plan if it:
- has missed the deadline to pay a VAT bill
- owes £100,000 or less
- owes for an accounting period that started in 2023 or later
- has no other payment plans or debts with HMRC
- has filed its tax returns
You can’t use the online service if you use the Cash Accounting Scheme or the Annual Accounting Scheme, or if you make VAT payments on account. You also need to be named on the UK bank account the Direct Debit comes from, and able to authorise it without anyone else’s signature.
If you can’t use the online service, call HMRC’s Payment Support Service on 0300 123 1813 (Monday to Friday, 8am to 6pm) to ask about a plan by phone.
How to set up Time to Pay with HMRC
Before you contact HMRC, have these ready:
- the reference number for the tax you can’t pay (for VAT, your 9-digit VAT registration number)
- your UK bank account details, as you must be able to set up a Direct Debit
- your company’s income and spending
If you can’t set the plan up online, HMRC will ask whether you can pay in full, how much you can repay each month, whether you have other taxes to pay, and what your income, spending, savings and investments are.
For a company in tax debt, HMRC will ask how you will pay as quickly as you can, and it will test your proposal to make sure it is realistic and affordable. You must reduce the debt as much as possible first, for example by releasing assets such as stock, vehicles and shares. HMRC may also ask company directors to put personal funds into the business, to accept lending or to extend credit.
What to have ready before you call HMRC
- your VAT registration number and the amount and period of the bill
- your company’s income and spending for the coming months, and its bank balance
- how much you can pay now, and how much each month
- which other tax bills are due soon, such as PAYE and corporation tax
- whether any customers owe you money that will arrive in the next few weeks
HMRC will expect you to have thought through a realistic offer. If a lender is part of your plan, say so: HMRC’s own guidance mentions directors accepting lending as one way a company can pay its tax.
How much will HMRC ask you to pay each month?
There is no fixed amount. HMRC bases the instalments on what the business can afford, and expects savings or assets to be used to reduce the debt first. You can agree to pay more if you want to: paying the debt quicker means paying less interest.
How long can a Time to Pay arrangement last?
GOV.UK says there’s no time limit. The length depends on how much you owe and what you can afford each month. You can ask HMRC to make the plan longer or shorter, and you should tell HMRC if anything changes that affects it.
If you can’t pay another tax bill while a plan is running, contact HMRC. You may be able to include the new bill in your existing plan.
Does HMRC charge interest on Time to Pay?
Yes. HMRC charges late payment interest on the unpaid VAT from the first day it is overdue until it is paid in full, including while a Time to Pay arrangement is running. The rate is the Bank of England base rate plus 4%, and HMRC’s payment plan service includes it in the instalments.
What happens to VAT late payment penalties?
VAT paid more than 15 days late gets a late payment penalty: 3% of the VAT unpaid at day 15, a further 3% of what is still unpaid at day 30, and then a second penalty charged daily at 10% a year. HMRC says a Time to Pay arrangement can mean lower, or no, late payment penalties, and the timing of your request matters:
- Between days 1 and 15: pay in full, or ask for Time to Pay, to avoid the penalty that applies from day 16.
- Between days 16 and 30: pay in full, or ask for Time to Pay by day 30, to avoid the higher penalties from day 31.
- From day 31: paying in full or agreeing Time to Pay stops the second penalty and the interest growing.
If you don’t keep to the conditions of the plan, HMRC may cancel it and charge both penalties as if the Time to Pay arrangement never existed. Our VAT late payment penalty calculator shows the amounts for your bill.
An example: what waiting costs on a £40,000 VAT bill
This example is illustrative. A company’s VAT bill of £40,000 is due on 7 November, and it can’t pay on the day.
| If the VAT is paid, or Time to Pay is agreed | Late payment penalty |
|---|---|
| Within 15 days | None |
| Between days 16 and 30 | £1,200 (3% of £40,000) |
| Still unpaid at day 31 | £2,400 (3% at day 15 plus 3% at day 30), then a second penalty of about £11 a day (10% a year) |
Late payment interest is charged on top from the first day, whichever route you take. The first 15 days are when a decision makes the biggest difference: ask HMRC for Time to Pay, or arrange to pay HMRC in full, before the first penalty applies.
What if you miss a payment or HMRC says no?
If you miss a payment, HMRC will contact you to find out why and, where possible, try to rearrange the plan. HMRC’s service also warns that you need to stay up to date or it could ask you to pay in full.
You can’t appeal against HMRC’s decision on a payment plan, but you can make a complaint if you’re unhappy with how you were treated. If HMRC refuses, the usual next steps are a revised offer with a lower monthly amount or a longer period, or paying HMRC in full another way, such as a VAT loan.
What happens if you don't contact HMRC?
HMRC will try to contact you about a missed payment, by letter, text or a visit. If you don’t respond or can’t agree a plan, HMRC may:
- ask a debt collection agency to collect the money
- take money directly from your bank account (in England, Wales and Northern Ireland)
- take things you own and sell them (in England, Wales and Northern Ireland)
- take you to court
- close down your company, if the tax is a business tax
HMRC tells you before it takes any of these steps. Talking to HMRC early keeps more options open.
Time to Pay or a VAT loan: how they compare
A VAT loan pays HMRC in full, and your company repays the lender instead. VAT Loans is a credit broker: we introduce companies to a panel of lenders, and funding is subject to status, affordability and lender approval.
| Feature | HMRC Time to Pay | VAT loan |
|---|---|---|
| Who decides | HMRC, on affordability | A lender, on status and affordability |
| When HMRC is paid | In instalments over the plan | In full, normally within 24 hours of the signed documents |
| Cost | Late payment interest at base rate plus 4% on the unpaid VAT | The interest and any fees in the lender’s quotation |
| Late payment penalties | Can be lower or nil, depending on when you ask | None, if HMRC is paid by the deadline |
| How long | No set limit; based on what you can afford | Three fixed monthly repayments |
| Amounts | Online: £100,000 or less; above that, by phone | VAT bills from £5,000 to £15 million |
| Missed payment | HMRC may cancel the plan and ask for full payment | The lender’s agreement applies |
Which should your company choose?
Time to Pay can suit a company that needs a longer period than three months, or that owes an amount HMRC will spread at a pace the business can afford. Ask early, and keep every new tax payment up to date while the plan runs.
A VAT loan can suit a company that wants HMRC paid in full and on time, with no late payment penalties and nothing further to agree with HMRC, and that can afford three fixed monthly repayments. Decisions are normally made within 24 hours, so a company can arrange one before the deadline, or within the first 15 days after it, before the first penalty applies.
If the problem is more than a short-term cash gap, neither option fixes it on its own. Speak to your accountant, or take free debt advice, before committing to either.
Time to Pay for corporation tax and PAYE
The same Time to Pay approach applies to other business taxes, including corporation tax and PAYE. Our guide to paying corporation tax in instalments explains the rules for companies. To pay a corporation tax bill in full and spread the cost instead, see corporation tax loans, available to UK limited companies from £8,000.
Frequently asked questions
What is the HMRC Time to Pay phone number?
HMRC’s Payment Support Service is on 0300 123 1813, Monday to Friday, 8am to 6pm. From outside the UK, call +44 2890 538 192.
Can I pay off a Time to Pay arrangement early?
Yes. You can agree to pay more than the instalment, and paying the debt quicker means you pay less interest.
Can I have two Time to Pay arrangements?
To use the online service you must have no other payment plans or debts with HMRC. If a new bill arrives during a plan, contact HMRC, which may add it to your existing plan.
Does Time to Pay stop HMRC taking action?
HMRC agrees a plan instead of recovering the debt in other ways, as long as you keep to it. If the plan is cancelled, HMRC can ask for the full amount and charge the late payment penalties as if the plan had never existed.
Can a VAT loan pay HMRC after the deadline?
Yes. A VAT loan can still pay HMRC in full after the deadline. Late payment interest runs from the first day, and paying within 15 days avoids the first late payment penalty.
How do I know if a VAT loan is right for my company?
Compare the total you would repay with the cost of paying HMRC late, using our VAT loan calculator and the penalty calculator. Then call us on 01494 956 871 to talk it through.