HMRC Time to Pay or a business loan: how to deal with a tax bill you can't pay

If your company cannot pay a tax bill in full, start with HMRC. A Time to Pay arrangement spreads what you owe into monthly instalments, costs nothing to set up, and on a VAT bill stops late payment penalties from the day you ask. Interest runs at 7.75% a year on the balance, so it is not free, but on interest alone it is usually cheaper than borrowing. A business loan answers a different question: not how to spread a bill you cannot pay, but how to pay one on time when your money is late. If the bill is already overdue, deal with HMRC first: arrears count against a loan application just when you most want one.

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What a Time to Pay arrangement is

When your cash flow doesn't line up with your taxes, working out how to meet your obligations can be stressful. A Time to Pay arrangement is HMRC's answer to that: an instalment plan that spreads a tax bill you cannot pay in full over an agreed period.

gov.uk calls it a payment plan; HMRC's VAT guidance calls it 'a payment plan known as a Time to Pay arrangement'. They are the same thing. HMRC runs dedicated payment-problem lines for Corporation Tax, VAT, and employer PAYE, which are the three bills a limited company is most likely to be caught short on. Our guide to Corporation Tax payments covers the payment routes and the instalment rules for larger companies.

There is no fixed maximum length, whatever you may have read elsewhere: gov.uk says 'there's no time limit on how long a payment plan can last. It will depend on how much you owe and what you can afford to pay each month.' What HMRC will not do is reduce the tax itself. An arrangement changes when you pay, never how much.

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Whether HMRC will agree, and what it will ask you

HMRC agrees an arrangement if it believes you can keep to it, and not otherwise. gov.uk puts the test plainly: HMRC 'will ask you how you'll pay your tax bill as quickly as you can' and 'will ask questions about your proposal to make sure it is realistic and affordable for you'. Your returns need to be filed first, because until they are, HMRC cannot work out what you actually owe.

Have this to hand before you call or sign in:

• Whether you can pay in full, and if not, how much you can pay each month.
• Any other tax bills due, including ones not yet overdue.
• What the company earns and usually spends each month.
• What savings or investments it has.

The monthly figure is not simply something you propose. HMRC works from what is left after rent, utilities, and fixed outgoings, and 'you'll usually be asked to pay around half of what you have left over each month towards the tax you owe'. You can offer more, and clearing the balance sooner costs less in interest.

The part that catches directors out is what HMRC expects you to do before any of that. 'You must reduce your debt as much as possible before setting up a payment plan', gov.uk says, and it names how: by 'releasing assets like stock, vehicles and shares'. For companies it goes further. HMRC 'may ask company directors to: put personal funds into the business; accept lending; extend credit'.

So if you have a warehouse of stock waiting to be sold, HMRC would rather you sold it than agreed a plan with you. That is reasonable from where HMRC sits and awkward from where you sit. A company with assets and a short-term timing problem can be asked to give up something that earns money in future, selling in a hurry rarely gets the best price, and the equipment you release this month is the equipment you need next month.

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How to ask, and the number to call for each tax

Ask as early as you can. HMRC is markedly easier to deal with before a deadline than after one, and on a VAT bill the date you ask changes what you pay.

1. Start with HMRC's digital assistant. It covers problems paying Corporation Tax, VAT, and employer's PAYE, and it can pass you to a webchat adviser. There is also an online service that checks whether you are eligible for a payment plan and sets one up, though you have to sign in before it will tell you whether your bill qualifies.
2. Otherwise, call the line for your tax. Corporation Tax is 0300 200 3840, VAT is 0300 200 3831, and employer's PAYE is 0300 200 3819. All three are open Monday to Friday, 08:00 to 18:00, and closed on bank holidays.
3. Have your reference and your figures ready. You need the reference for the tax you cannot pay, and UK bank details for an account you are authorised to set up a direct debit on.

You may have seen specific thresholds quoted for setting a plan up online, usually a maximum debt and a maximum plan length. gov.uk no longer publishes them for any tax, and the guidance page that did has been withdrawn, so we are not going to repeat numbers HMRC itself has taken down. Sign in and the service will tell you where you stand. For a VAT bill, our guide to a VAT payment plan covers the same route in VAT's own terms.

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What a Time to Pay arrangement costs

Interest, and nothing else. It does not stop while you are paying in instalments: 'where an amount due is paid in instalments, such as a Time to Pay arrangement, HMRC charges interest on the outstanding balance until you pay the tax in full'.

The rate is the Bank of England base rate plus 4%, which has meant 7.75% a year since 9 January 2026, with the base rate at 3.75%. It is charged on what is still outstanding, so it falls away as the balance comes down. On an illustrative £25,000 bill cleared in six equal monthly instalments, that works out at about £565. The rate moves with the base rate and the next Bank of England announcement is 5 November 2026, so check HMRC's published rate before you rely on a figure of your own.

Often the bigger number is the penalty you avoid. On a VAT bill, HMRC says that agreeing an arrangement 'can mean lower, or no, late payment penalties', and the date you ask is what decides it. Ask within 15 days of the deadline and the penalties that start at day 16 do not apply at all. Ask by day 30 and you avoid the higher ones that start at day 31. Our guide to HMRC tax penalties sets out what each of those stages costs.

Corporation Tax works differently, and it is worth knowing which position you are in. There is no late payment penalty on Corporation Tax at all, only interest charged daily from the day after the deadline. So on Corporation Tax an arrangement saves you interest rather than a penalty, and the interest you do pay is deductible for Corporation Tax purposes.

Every figure here was checked against gov.uk on 20 October 2026. The autumn Budget falls eight days later, on 28 October 2026, and a rise in the VAT late payment penalties is already announced for April 2027, so check the date on anything you are about to act on.

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If you miss a payment, or never get in touch

HMRC's first move is not enforcement. 'HMRC will contact you to find out why', gov.uk says, and 'where possible, they'll try to rearrange or renegotiate the payment plan with you'. If your circumstances change you can ask to make the plan longer or shorter, and if another tax bill lands that you cannot pay, it may be able to go into the same arrangement.

There is one sharp exception, and it is on VAT. If you break the conditions the arrangement can be cancelled, and HMRC then charges the first and second late payment penalties 'as if the Time to Pay arrangement never existed'. That is the reason not to offer a monthly figure you cannot actually meet. An optimistic plan that fails costs more than a modest plan that holds.

HMRC can also withdraw an arrangement if:

• New information comes to light that challenges the basis for it.
• You gave HMRC inaccurate or misleading information.
• You miss the agreed payments, or break the terms some other way.
• Something else puts the tax owed at risk.

If you make no contact at all, HMRC's published list of what it may do includes using a debt collection agency, taking money directly from the company's bank account, taking you to court, and closing the company down if the tax is a business tax. It describes all of that as a last resort and says it will try to talk to you first. What happens from there is covered in our guide to business tax arrears.

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When borrowing makes more sense than a payment plan

Borrowing is not an exotic option here. It is one of the things HMRC says it may ask a director to consider. But it answers a narrower question than a straight comparison suggests, and the thing that decides it is not how much you owe. It is whether the money is coming.

If your income has fallen and the cash is not going to appear, a loan does not solve that. It puts a second set of monthly payments on top of the first, and HMRC's arrangement exists for exactly that situation. If the money is contracted and simply late, the position is different. A customer on long payment terms pays next month, the bill is due next week, and paying on time ends the interest and keeps you out of the penalty stages altogether. That is a timing gap, and it is what short-term borrowing is for.

A loan costs you two things an arrangement does not. The first is more interest: a commercial lender's rate will normally sit above HMRC's 7.75%, because HMRC is not pricing for risk or for profit. The second is rarely mentioned. An unsecured business loan normally needs a personal guarantee from at least one director, so a debt that sat with the company becomes one a person has promised to repay. Ordinary company tax debt does not work that way. If you are weighing this up because you do not want your home exposed, put that to the lender: on an unsecured loan no charge is taken over your property at the outset, but a director's guarantee stands behind the borrowing.

The two routes differ in who decides, what they cost, and who ends up carrying the debt:

If a Corporation Tax or VAT bill is due before your cash comes in, an iwoca Flexi-Loan lets you pay it on time and repay early for free once your sales catch up. It is a business loan with flexible repayment options, and because there is no fee for repaying early, the money can go back as soon as the customer payment lands. That suits a company with seasonal income or customers on long payment terms, where a quarterly bill falls in a month when very little comes in. It does not suit a company trying to cover a bill it cannot yet afford, and we wouldn't lend to a business unless we were confident it could meet its minimum repayments.

Flexi-Loan in action: VCare24

Victoria Simpson's social care business delivers care long before the local authorities pay for it, and payroll does not wait. She draws around £200,000 to cover wages and pays it back within a week, as the payments come in. Read Victoria's story

The two routes are also not mutually exclusive. Say that £25,000 VAT bill is being cleared over six months, two customer payments slip, and one instalment is suddenly at risk. A short-term business loan covering that one instalment keeps the arrangement intact, which is what stops the penalties being recalculated as though it had never existed. If you have already decided borrowing is the right answer, our guide to tax loans covers what to look for.

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Time to Pay questions

Will a Time to Pay arrangement affect your company's credit score?

Nobody can tell you for certain, and gov.uk does not address it. HMRC's guidance on payment plans says nothing about credit files, credit reference agencies, or public records, so a flat yes or no on the subject is someone's assumption rather than a fact.

What is checkable runs the other way. Tax arrears can show up in credit checks and count against a finance application, so being behind makes borrowing harder at the point you might most want it.

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Can you add a new tax bill to an existing arrangement?

Possibly, and the thing to do is ask. gov.uk's instruction is simple: 'if you cannot pay another tax bill, contact HMRC. You may be able to include the new tax bill in your payment plan.' Staying in contact is what keeps an arrangement alive.

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Should you speak to an accountant?

Yes, if you can. An accountant can check what you actually owe before you commit to a monthly figure, tell you what a realistic offer looks like for your company, and say whether the bill is better met from the company's own resources than from either route here.

Everything above is general information about how the rules work rather than tax advice, and your own circumstances may change the answer.