If you have a tax bill you cannot pay in full, you are not alone. Every year, hundreds of thousands of UK taxpayers find themselves in the same position. The good news is that HMRC does allow you to spread your tax payments over time through a formal agreement.
An HMRC payment plan, formally called a Time to Pay arrangement, lets you pay tax in instalments, usually over 6 to 12 months. You must have filed all outstanding tax returns to qualify. Many Self Assessment taxpayers can now set up a payment plan online for tax bills up to £30,000, provided they apply within around 60 days of the payment deadline and have no other HMRC debts.
Interest at 8.5% per annum is always charged on unpaid tax, even under an HMRC payment plan. However, late payment penalties are usually avoided if the plan is agreed in time and you keep to it.
If you miss an instalment, HMRC can cancel the arrangement, demand the full amount and start enforcement. Early communication or professional tax advice is vital.
We at The Taxcom can review your position and help you set up a realistic payment arrangement. This article explains how an HMRC payment plan works, who qualifies, what information you need and what to watch out for along the way.
What Is an HMRC Payment Plan?
An HMRC payment plan is an agreement that lets individuals and businesses spread the cost of a tax bill over monthly instalments instead of paying everything at once. HMRC formally calls this a Time to Pay arrangement, and it covers most major taxes, including Self Assessment income tax, VAT, PAYE and corporation tax.
It is important to understand that a payment plan with HMRC does not reduce the total tax owed. It simply lets you make regular payments over an agreed period while interest continues to accrue on the outstanding balance until the entire debt is cleared.
For taxpayers who want to plan ahead rather than deal with existing debt, HMRC also offers a budget payment plan. A budget payment plan allows weekly or monthly tax payments toward future liabilities and can be set up through your HMRC account. Budget payment plans do not reduce the total tax owed either, but they help you avoid a large lump sum at the deadline.
Setting up a payment plan prevents formal debt collection actions by HMRC, giving you breathing space to manage your finances. At The Taxcom, we regularly help individuals and small businesses in Manchester and across the UK negotiate such an arrangement when a sudden or historic tax bill lands.
What Is an HMRC Time to Pay Arrangement?
HMRC’s Time to Pay is the official name for an HMRC payment arrangement that lets you pay HMRC in instalments after the normal payment deadline has passed. Time to Pay arrangements allow monthly tax payments over a period tailored to your individual circumstances.
Typical terms in 2026 look like this:
- Individuals with moderate Self Assessment debts often agree plans lasting 6 to 12 months.
- Businesses with larger VAT, PAYE or corporation tax debts may secure arrangements over 12 to 24 months.
- In genuine hardship cases, HMRC may agree shorter or longer plans.
HMRC expects full transparency. You will need to explain your monthly income, household bills, business cash flow and savings so they can judge what you can realistically afford. As long as such an arrangement is agreed before penalties are triggered and all instalments are paid on time, you usually avoid late payment penalties, though interest still applies.
We at The Taxcom can prepare supporting figures, including cash flow forecasts and budgets, to strengthen your Time to Pay proposal and improve the chances of HMRC accepting it.
Who Can Set Up an HMRC Payment Plan?
Both individuals and businesses can request an HMRC payment plan. This includes sole traders, partners, limited company directors with a personal self assessment bill and companies with PAYE or VAT debts.
For Self Assessment in 2025/26, typical eligibility criteria for the online service are:
- Your tax bill is £30,000 or less (you can apply online if you owe £30,000 or less)
- All tax returns have been filed (a Time to Pay arrangement cannot be set up until a return is filed)
- You have no other outstanding Time to Pay for the same debt
- You are within 60 days of the payment deadline
- Debts must be under £50,001 for businesses to apply online
Eligibility for online self-service setup typically requires you to have filed tax returns and have no other debts. Taxpayers with missing returns, historic penalties or repeated defaults may still negotiate an HMRC instalment plan, but HMRC will scrutinise the case more closely.
If you are unsure whether your circumstances qualify, contact Taxcom accountants for guidance before you apply.
When Can You Ask HMRC to Pay in Instalments?
You can approach HMRC as soon as you realise you cannot afford to pay HMRC in full. Contacting them before the payment deadline gives the best chance of a smooth agreement and helps you avoid penalties.
Key dates to remember:
- Self Assessment: the main deadline is 31 January following the tax year, with a second payment on account due 31 July.
- VAT: typically due one month and seven days after the quarter end.
- PAYE: due by the 22nd of the following month when making payments electronically.
Payments must be made by the deadline to avoid penalties. Taxpayers should not ignore tax bills but communicate with HMRC promptly. Waiting until HMRC starts sending warning letters or enforcement notices makes negotiation harder and reduces the flexibility of any payment plan.
If you are already behind with several tax payments, speak to us at The Taxcom so we can put a realistic proposal to HMRC in advance of further action.
How to Set Up an HMRC Payment Plan
Setting up an HMRC tax payment plan follows a clear process, whether you do it online or by phone. Here is the typical sequence:
- Check your total tax bill and confirm which tax type and period you owe for.
- File any outstanding tax returns. You must file a self-assessment return before setting up a Time to Pay arrangement.
- Gather your financial information (income, expenses, assets).
- Check whether you qualify for the online service.
- If not, contact HMRC’s Payment Support Service by phone.
- Agree instalment dates and amounts.
- Set up a direct debit to make your payments automatically.
For example, if you owe £10,000 for your 2024-25 assessment bill and apply online in early February 2026, you might spread that over 10 monthly payments of roughly £1,000, plus interest.
If you feel uncomfortable speaking to HMRC, or have multiple debts, we can liaise on your behalf, prepare affordability calculations and manage correspondence.
Information HMRC May Need
Individuals must gather specific information such as tax reference and income details to apply. HMRC will commonly ask for:
- Your Unique Taxpayer Reference (UTR) and National Insurance number
- The tax type, period and exact amount you owe
- Monthly income from all sources (wages, self-employment profit, benefits, rental income)
- Essential household costs: rent or mortgage, utilities, council tax, food, transport, childcare
- Business overheads if you are self-employed or run a company
- Savings, assets and any other creditors or debts
- Whether you are registered and up to date with current tax payments
How Affordability Is Assessed
HMRC assesses affordability via a review of income and essential household spending. They calculate your disposable income, the difference between what comes in and what you genuinely need to spend, and then expect a significant portion of that surplus to go toward monthly tax instalments.
HMRC may question high non-essential spending, ask why savings cannot be used or suggest higher instalments if they believe you can pay more. Prepare a realistic monthly budget before you discuss your proposal with HMRC. Personal financial circumstances are reviewed by HMRC to set a realistic monthly payment amount, and HMRC may renegotiate the payment plan if circumstances change rather than treating it as failed.
Our advisers can test different payment scenarios with you to make sure any plan is both affordable and defensible.
Online vs Contacting HMRC
You can use HMRC’s payment plan online service through your Government Gateway account if you have a recent Self Assessment bill of £30,000 or less and all returns are filed. The online journey is straightforward: sign in, select “Set up a payment plan,” confirm the tax bill, choose your monthly amounts and date, and agree to pay by direct debit.
You must contact HMRC by phone if:
- Your debt exceeds £30,000 (you can contact HMRC directly if your debt exceeds £30,000 or if you need bespoke arrangements)
- You owe multiple tax types (VAT, PAYE, corporation tax)
- You have old arrears or previous Time to Pay failures
We can attend HMRC calls with you or act as your authorised agent, which is especially useful for large or complex pay plan negotiations.
How Much Can You Pay Each Month?
Monthly payments under an HMRC payment plan are based on what you can genuinely afford after essential costs. HMRC usually expects the tax debt to be cleared as quickly as reasonably possible. Time to Pay arrangements typically last 6 to 12 months for individuals, while businesses with cash-flow pressures may need 12 to 24 months.
Avoid proposing unrealistically low instalments HMRC is likely to reject, or unrealistically high payments you will struggle to maintain. A practical approach is to prepare at least two options, for example one over 6 months and one over 12 months, so you and HMRC can find a middle ground.
We can model these options and help present a clear repayment schedule that balances HMRC’s expectations with your actual budget.
Does HMRC Charge Interest on Payment Plans?
Yes. HMRC always charges late payment interest on unpaid tax, including when you pay HMRC in instalments under a Time to Pay agreement. Interest on unpaid tax is 8.5% per annum, linked to the Bank of England base rate. Interest continues to accrue during a Time to Pay arrangement until the balance is fully cleared.
A Time to Pay arrangement can protect you from additional late payment penalties, provided the plan is agreed before penalties are triggered and you comply with it. Late payment penalties are 5% after 30 days if no arrangement is in place.
Where possible, consider making a lump-sum payment up front alongside instalments. Paying down the balance earlier reduces overall interest. Ask us at The Taxcom to calculate the likely interest cost of different plan lengths so you can choose the most cost-effective approach.
What Happens If You Miss an Instalment?
Missing or cancelling a direct debit payment under an HMRC payment plan can lead HMRC to treat the arrangement as defaulted and demand the full remaining balance immediately. Missing a Time to Pay payment can trigger penalties, and those penalties can escalate to enforcement actions for unpaid debts, including debt collectors, deductions from wages or bank accounts and court proceedings.
If you know in advance that you cannot make a payment, contact HMRC straight away to discuss adjusting the plan. Repeated defaults make it harder to arrange new plans, and HMRC may insist on higher instalments or additional security before considering another payment arrangement.
We often help clients who have already defaulted on a plan by re-presenting their case to HMRC with updated figures and a more realistic schedule.
Can a Payment Plan Affect Your Tax Compliance?
Having an HMRC payment plan in place does not damage your tax record, provided you keep to it. However, HMRC expects full ongoing compliance while HMRC’s time to pay is running. That means you must still file all future tax returns by the deadline and pay new tax liabilities on time.
Ignoring current obligations while focusing only on past arrears can cause HMRC to see you as non-compliant and may lead them to withdraw your existing arrangement. Although an HMRC payment plan is not reported like a loan on your credit file, serious enforcement such as County Court Judgments, insolvency or HMRC tax investigation into past returns can affect your creditworthiness.
We can help put your wider tax affairs back on track, including overdue tax returns and professional bookkeeping services, so HMRC sees you are managing your responsibilities. If you are still uncertain about your position, contact The Taxcom for an initial discussion with our team.
HMRC Payment Plan FAQs
Can I pay HMRC in instalments?
Yes. In many cases you can pay tax in instalments using an HMRC payment plan or Time to Pay arrangement, as long as HMRC agrees the figures and you have filed the necessary tax returns. You can set up a Time to Pay arrangement online for debts up to £30,000, or phone HMRC for larger cases.
Can HMRC refuse a payment plan?
HMRC can refuse if they believe you can afford the full amount, if your proposal is too low, or if you have a history of ignoring other payment plans. Refusal is more likely where returns are unfiled or your form shows excessive non-essential spending. You can usually come back with a revised offer supported by clearer evidence.
How long can an HMRC payment plan last?
Most individual plans run between 6 and 12 months. Businesses may sometimes secure arrangements over 12 to 24 months with supporting cash-flow forecasts and accounts. No fixed maximum length exists for an individual payment plan; it depends on the debt and affordability. HMRC will always try to limit the term so the bill is cleared as quickly as possible without causing undue hardship.
What happens if I cannot maintain the arrangement?
If your circumstances worsen, contact HMRC before missing a payment to ask for revised terms. HMRC may agree to reduce payments temporarily or extend the term. We can help you reassess your budget and, where appropriate, negotiate with HMRC on more manageable terms.
What if I have several different tax debts at once?
It is often possible to include more than one tax type in a single HMRC payment arrangement, for example combining Self Assessment arrears with VAT or PAYE. This usually requires a phone negotiation rather than an online application. HMRC will want a full picture of all your debts and other creditors. We recommend working with professional advisers like The Taxcom to prepare a complete schedule and a realistic consolidated repayment plan before approaching HMRC.
Disclaimer: This article provides general guidance and does not constitute formal legal or tax advice. Tax rules and HMRC processes can change. For advice tailored to your personal or business circumstances, please speak to a qualified adviser.
Need help with an HMRC payment plan? At The Taxcom, we offer tailored tax planning, compliance and investigation defence services. We can review your tax liability, prepare your proposal and speak to HMRC on your behalf. Get your Free Consultation today.