Key Takeaways
- An HMRC Time to Pay arrangement lets you clear tax arrears in affordable instalments. It is discretionary, and HMRC can refuse a weak proposal.
- File every outstanding return before asking HMRC to negotiate. Support your request with cash-flow forecasts, bank statements, accounts and asset details.
- Straightforward Self Assessment debts of £30,000 or less and VAT debts up to £50,000 may qualify for an online application.
- Offer the highest realistic monthly payment over the shortest viable period. Explain the cash-flow problem and show how future taxes will be paid.
- Interest continues during an agreed plan. The plan does not write off the underlying debt or existing penalties.
- Missing an instalment or failing to pay current tax can lead HMRC to cancel the arrangement and take legal action.
- If HMRC refuses, you can revise the proposal or challenge an incorrect debt. Take urgent advice if insolvency or enforcement proceedings threaten.
- Our solicitors can assess a refusal, negotiate revised terms, challenge disputed liabilities, and defend statutory demands, petitions and related court applications.
- Go Legal is rated Excellent with over 300 five-star reviews and 5/5 on Trustpilot and Google, placing our solicitors among the best-reviewed litigation lawyers in England and Wales.
How Does an HMRC Time to Pay Arrangement Work If HMRC Refuses?
An HMRC Time to Pay arrangement is not an automatic right. HMRC assesses whether you genuinely cannot pay on time, whether your proposed instalments are affordable, and whether you can meet future VAT, PAYE, Corporation Tax or Self Assessment liabilities. Interest keeps accruing while you wait, and delay increases the risk of a statutory demand, winding-up petition or bankruptcy petition.
A refusal is not the end of the road. Depending on why HMRC said no, the answer may be a stronger proposal, a challenge to the tax debt itself, or advice on insolvency or enforcement defence.
What Is an HMRC Time to Pay Arrangement and How Does It Work?
An HMRC Time to Pay arrangement is a discretionary agreement that lets a taxpayer clear tax arrears in affordable instalments instead of one lump sum.
It may be available for overdue VAT, PAYE, Corporation Tax, Self Assessment and other HMRC liabilities. HMRC assesses each request individually. Under its Debt Management and Banking Manual, HMRC must be satisfied of three things:
- the taxpayer cannot pay on the due date;
- the taxpayer can keep up the proposed payments; and
- the taxpayer can pay other taxes that fall due during the arrangement.
There is no automatic right to instalments, and HMRC can refuse.
A payment plan does not reduce the tax due. HMRC’s guidance confirms that it cannot reduce the amount of tax as part of a Time to Pay arrangement. Interest continues to be charged on tax paid after its due date, whether or not an arrangement has been agreed.
HMRC’s guidance also says the arrangement period should be “as short as possible”. Most arrangements run for a few months, although longer periods are possible. Arrangements longer than 12 months are exceptional and need a manager’s authorisation.
A verbal assurance that you will pay later is not an HMRC Time to Pay agreement. Ask HMRC to confirm in writing:
- the agreed instalments;
- the payment dates;
- any review date; and
- the payment method.
Who Qualifies for an HMRC Payment Plan for Tax Arrears?
An HMRC payment plan is most likely to suit a taxpayer with a temporary cash-flow problem who can credibly clear the debt while staying up to date with new tax.
How Do You Tell Whether You Have a Temporary Cash-Flow Problem or Wider Insolvency?
A temporary cash-flow problem means the money is expected within a realistic period but is not available when the tax falls due. Common causes include a delayed customer payment, short-term trading disruption or a one-off expense.
Time to Pay is far less likely to solve a wider financial problem. Directors should ask whether the company can pay payroll, suppliers, lenders, rent and future taxes, not only the HMRC balance. If the business has no realistic prospect of meeting its liabilities generally, a repayment plan may simply delay a deeper problem.
In that situation, formal insolvency advice may be needed. For a company, the options include a Company Voluntary Arrangement, administration or liquidation. For an individual, they include an Individual Voluntary Arrangement or bankruptcy.
A different issue arises where the HMRC debt itself is wrong. If an assessment, penalty or calculation is genuinely disputed, the priority may be to challenge the liability. Agreeing a payment plan does not settle whether the sum is correctly due.
What Does HMRC Look at Before Agreeing a Time to Pay Arrangement?
HMRC considers whether the request is honest, affordable and supported by evidence. Under HMRC’s published conditions, a taxpayer seeking Time to Pay must:
- disclose all HMRC debts;
- give truthful information about why Time to Pay is needed and their ability to pay;
- file future returns on time; and
- pay future liabilities in full and on time.
An application may be undermined by outstanding returns, inconsistent financial information, an unsupported forecast, a proposal that depends on uncertain income, earlier broken arrangements, undisclosed HMRC liabilities, or an inability to pay current taxes while repaying arrears.
The application route depends on the tax and the amount. For Self Assessment, an arrangement cannot be set up until the return has been filed. Where £30,000 or less is owed, the arrangement may be set up online without contacting HMRC directly. Where more than £30,000 is owed, or a longer repayment period is needed, the taxpayer can still apply but must contact HMRC directly. Straightforward VAT debts up to £50,000 may also be eligible for the online route. Larger or more complex cases go through HMRC’s Payment Support Service on 0300 200 3835.
A limited company can also seek an HMRC payment plan for business tax arrears. It must show that it can keep up the instalments while meeting new liabilities as they arise.
How Do You Negotiate Time to Pay With HMRC Successfully?
To negotiate Time to Pay with HMRC successfully, present a complete, evidence-led proposal that proves both that you need more time and that you can afford what you offer.
What Financial Evidence Does HMRC Need for a Time to Pay Arrangement?
HMRC uses your financial evidence to test whether the proposed instalment is realistic. A strong evidence pack includes:
- an income and expenditure statement;
- a rolling cash-flow forecast;
- recent bank statements;
- management accounts;
- a list of creditors and the amounts due;
- details of assets and liabilities;
- evidence of expected receipts, such as signed contracts or invoices; and
- details of current and future tax liabilities.
Each document answers a different question. Bank statements show the cash actually available. Management accounts show how the business is trading. The forecast shows when money should arrive and what must go out. The creditor list shows whether the business faces wider pressure.
Keep company and personal finances separate. A company’s tax debt belongs to the company unless there is a separate basis for personal liability. Personal finances may still matter where a director has given a personal guarantee or has an individual HMRC liability.
Before sending a forecast, check that it reconciles with your bank balances and management accounts. State your assumptions clearly, and include a lower-income scenario where collections are uncertain. An unexplained gap between the forecast and the bank statements is one of the quickest ways to lose credibility.
What Should a Realistic Repayment Proposal Include?
A realistic proposal offers the highest instalment you can maintain without missing future taxes or essential business payments. HMRC’s guidance expects the taxpayer to offer “the best payment proposals that they can realistically afford”.
Follow this process:
- File all outstanding returns.
- Confirm the full HMRC balance and identify any disputed amount.
- Prepare current financial evidence and a cash-flow forecast.
- Explain why the arrears arose and what has changed since.
- Calculate the highest sustainable monthly instalment.
- Show how future VAT, PAYE, Corporation Tax or Self Assessment liabilities will be paid when due.
- Obtain written confirmation of any agreement and its payment method.
According to GOV.UK’s payment plan guidance, HMRC will ask how much you can repay each month and whether other taxes also need to be paid. It may also ask for UK bank-account details and authority to set up a Direct Debit.
Do not offer a payment level simply because it sounds persuasive. An over-optimistic proposal can fail within weeks, leading to cancellation, and HMRC’s conditions allow it to take legal action once an arrangement is cancelled.
Where a statutory demand or petition has already been served, the debt is disputed, or the business may be insolvent, negotiating alone is risky. That is the point at which our solicitors can take over the negotiation and protect your position in any proceedings.
Can an HMRC Time to Pay Arrangement Stop a Statutory Demand, Winding-Up Petition or Bankruptcy Petition?
Early engagement and a credible proposal may resolve HMRC arrears before enforcement escalates. However, a Time to Pay request does not guarantee that enforcement will stop, and it does not automatically halt formal proceedings that have already begun.
What Should You Do Before HMRC Starts Insolvency Enforcement?
Before enforcement begins, establish three things: whether the debt is correct, whether the business can pay all its creditors, and whether a sustainable payment proposal is available.
Keep a written record of every communication with HMRC. Keep filing returns and paying new liabilities on time, because a fresh default undermines any proposal on the older debt.
A payment plan is not a substitute for assessing solvency. A company that cannot meet its wider liabilities may need insolvency advice even if it can offer HMRC short-term payments. Our guide to insolvency and winding-up procedure explains the risks facing companies under creditor pressure.
What Happens If a Petition or Statutory Demand Has Already Been Issued?
Once a statutory demand or petition has been served, the formal timetable runs regardless of any parallel negotiations with HMRC.
Individuals. Under the Insolvency (England and Wales) Rules 2016, an individual may apply to set aside a statutory demand within 18 days from service. If the individual does not apply within 18 days, or otherwise deal with the demand within 21 days after service, they could be made bankrupt.
Companies. According to GOV.UK guidance for directors, a statutory demand is a formal written demand for payment within 21 days. The company may pay the debt, reach an agreement to pay, or apply to court to stop the creditor winding it up. If there is no response after 21 days and the debt is over £750, an application may be made to wind the company up.
Under section 124 of the Insolvency Act 1986, an application to wind up a company is made by petition, and creditors are among those who can present one.
Once a petition has been presented, the court decides what happens at the hearing. Depending on the circumstances, a company may need to ask the court to adjourn the hearing while repayment terms are finalised, or apply for a validation order so that it can continue to trade and make payments. Each application must be supported by evidence, so gather the following immediately:
- the statutory demand or petition;
- all written communications with HMRC;
- the proposed repayment plan;
- current financial statements and cash-flow forecasts;
- evidence supporting any dispute over the debt; and
- evidence of the company’s ability to meet ongoing liabilities.
Directors who have given personal guarantees may face separate exposure. Our solicitors handle HMRC enforcement defence alongside director and shareholder disputes, including personal guarantee claims.
What Happens If HMRC Refuses Your Time to Pay Request?
If HMRC refuses Time to Pay, your next step depends on why it refused. The problem may lie in the evidence, the affordability of your offer, the accuracy of the tax debt, or wider insolvency.
Why Can HMRC Refuse a Payment Plan?
HMRC may refuse where it is not satisfied that you cannot pay on the due date, can keep up the instalments, and can pay future taxes during the arrangement. In practice, refusals usually follow incomplete returns, inconsistent figures, previous non-compliance, undisclosed tax liabilities or a proposal that relies on uncertain income.
HMRC’s guidance states that if it rejects a request, it should explain its reasons and the enforcement action that may follow. Record those reasons carefully. They show whether a revised proposal is worth making and what it needs to fix.
Should You Revise the Proposal, Dispute the Debt or Consider Insolvency?
The right route depends on the underlying issue:
- Revise the proposal where the payment level was unrealistic or the evidence was incomplete.
- Provide updated evidence where cash flow has changed or new receipts can be shown.
- Challenge the debt where an assessment, penalty or calculation is incorrect.
- Seek insolvency advice where the business cannot pay its debts generally.
- Get litigation advice immediately where a statutory demand, winding-up petition or bankruptcy process has begun.
Negotiating when to pay is different from disputing whether payment is due. A Time to Pay request should never replace a challenge to an incorrect liability, and agreeing instalments on a disputed sum can make a later challenge harder to present convincingly.
Our solicitors can review an HMRC refusal, assess disputed liabilities and advise on enforcement defence through our commercial disputes and litigation service.
How Do You Keep an HMRC Time to Pay Agreement From Being Cancelled?
An HMRC Time to Pay agreement stays in place only while every condition is met. HMRC may withdraw if new facts emerge, the taxpayer was untruthful, the taxpayer defaults, the conditions are not met, or tax is at risk.
During the arrangement, you must pay each instalment when due, file future returns on time, pay future tax in full and on time, and tell HMRC about any change in circumstances or ability to pay.
HMRC may set a review date. Under its review guidance, the taxpayer must contact HMRC by that date to explain their current position and ability to pay. If the taxpayer does not respond, HMRC may cancel the arrangement.
What happens next depends on whether payments are up to date:
- Payments in arrears. If revised proposals are unacceptable, the guidance says HMRC should cancel immediately.
- Payments up to date. HMRC should wait until a payment is missed before cancelling.
That difference makes staying current on instalments the single most protective step during any renegotiation. If a shortfall becomes likely, act before the payment date:
- Update the cash-flow forecast.
- Identify what has caused the shortfall.
- Prepare a revised, affordable proposal.
- Contact HMRC promptly.
- Keep a written record of every discussion and agreement.
How Go Legal Can Help With HMRC Time to Pay and Enforcement
Go Legal is a London-based commercial litigation law firm acting for individuals, directors, professionals and businesses across England and Wales.
Our solicitors start by working out whether an HMRC Time to Pay arrangement is genuinely viable, or whether the circumstances point to a tax dispute, enforcement defence or an insolvency route instead. We can help you to:
- prepare evidence-led repayment proposals;
- negotiate with HMRC on your behalf;
- challenge disputed assessments and penalties, including through internal review, First-tier Tribunal (Tax) appeals and judicial review;
- respond to statutory demands, winding-up petitions and bankruptcy petitions, including applications for adjournments and validation orders in live proceedings; and
- advise directors and individuals where wider insolvency options need to be considered.
Where a coordinated approach is needed, we work alongside accountants and insolvency practitioners. You can meet our team.
Go Legal is rated Excellent, with over 300 five-star reviews and a 5 out of 5 rating on Trustpilot and Google.
Frequently Asked Questions
Get Expert Help With Your HMRC Time to Pay Arrangement
Time to Pay can provide valuable breathing space, but only if your proposal is credible and you keep to every condition once it is agreed. If HMRC has refused your request or served a statutory demand, winding-up petition or bankruptcy petition, the formal deadlines keep running while you negotiate, and missing them can cost you your business or lead to bankruptcy.
