HMRC Tax Arrears: Time to Pay Explained

What is a Time to Pay arrangement?

A Time to Pay arrangement is an agreement with HMRC to pay a tax debt in instalments over an agreed period. It applies to taxes such as Self Assessment income tax, VAT, PAYE and Corporation Tax. HMRC checks whether the plan is affordable for you, and if it cannot agree a plan, GOV.UK says it will ask you to pay the amount you owe in full. The right route depends on the type of tax and the size of the debt, so use the official guidance and, if needed, contact HMRC.

Why contact HMRC early

• Interest and penalties can build up the longer a tax bill goes unpaid.
• Early contact shows good faith, which can make an arrangement easier to agree.
• HMRC has strong collection powers, including collecting from bank accounts in some circumstances and using enforcement agents. Taking advice early helps you avoid the worst outcomes.
• Some arrangements are available online for certain debts, with others requiring a call.

What to prepare

HMRC will want to understand your finances before agreeing a plan. Be ready with:

1. The amount you owe and the tax periods involved
2. Your income, outgoings and what you can afford to pay monthly
3. Details of any savings or assets that could be used
4. A list of other debts, since HMRC considers your wider position
5. Your tax reference numbers and bank details for a direct debit

If you are self-employed

For the self-employed, a tax bill can be hard to predict, particularly after a bad year. Set money aside for tax as you earn, and consider asking HMRC for a payment plan as soon as you see a problem. If your tax debt is part of wider business or personal debt, see business debt help and IVA for the self-employed. Remember that tax due after any formal solution starts must still be paid as it falls due.

Interest and penalties

Interest is charged on overdue tax, and penalties may apply for late filing and late payment. The exact rates and rules change, so check the current position on GOV.UK. A payment plan does not usually stop interest from accruing, but it can prevent further penalties and stop more serious collection action. Do not ignore letters. If you think a penalty is unfair, for example because of illness or other reasonable excuse, there are ways to appeal.

Is tax a priority debt?

Yes. HMRC debts are priority debtsPriority and Non-Priority Debts ExplainedLearn which UK debts are priority debts, such as rent, council tax and energy bills, which are non-priority, and why the difference matters.Read more → because it has strong powers to recover them. Pay them ahead of credit cardsHow Credit Cards Work in the UKHow UK credit cards work: interest, APR, minimum payments, interest-free periods, fees, Section 75 protection and how to use a card without getting into debt.Read more →, loans and catalogues. Your free adviser can show how to fit HMRC into a budget. See priority and non-priority debts.

HMRC and formal debt solutions

HMRC is a creditorHow to Deal with Creditors: Communication and NegotiationPractical advice on communicating with creditors, negotiating affordable repayments, and understanding your rights when dealing with the companies you owe.Read more → like any other in an IVAIndividual Voluntary Arrangement (IVA)An IVA is a legally binding agreement to repay a portion of your debts over a fixed period. Understand how IVAs work, eligibility, costs and consequences.Read more →, Debt Relief OrderDebt Relief Order (DRO)A Debt Relief Order is a formal solution for people with low income, low debt and few assets. Learn how DROs work, eligibility criteria and what happens to your debts.Read more → or bankruptcyBankruptcyBankruptcy is a legal process that writes off most debts when you cannot repay them. Understand how bankruptcy works in the UK, the consequences and alternatives.Read more →, and it has a vote in an IVA. Sometimes HMRC objects to proposals and may take a firm line. If you are considering an IVA with tax debts, ask the practitioner about HMRC's likely response. See IVA and council tax arrears for how another public body is treated, and IVA vs DMP vs DRO vs bankruptcy.

Where to get help

HMRC has a service for people who cannot pay, and it may offer extra support if you have a disability, a health condition or other vulnerability. Free advice is available from Business Debtline for the self-employed and from StepChange, National Debtline and Citizens Advice for individuals. See free debt advice in the UK. Be wary of firms that cold call offering to "settle" your tax debt for a fee.

A worked example

A freelance designer owes £6,000 for Self Assessment and cannot find it all by the deadline. She contacts HMRC, explains that a client paid late and sets out her income and spending. She proposes monthly payments over the next year and sets up a direct debit. Interest still builds up, but she avoids more serious collection action and keeps her business running. She also sets aside a fixed share of every invoice for next year's tax. The lesson is that early contact and a realistic plan matter more than a perfect position.

Mistakes to avoid

Do not ignore letters and hope the problem goes away. Do not agree to payments you cannot sustain. Do not pay a firm to "settle" your tax debt without checking it is authorised and that the fee is worth it. And do not forget about next year's tax: a new bill can undo the work you have done on the old one.