HMRC Time to Pay: How to Set Up a Tax Payment Plan

Quick answer: HMRC Time to Pay is a payment plan that lets you clear an overdue tax bill in monthly instalments by Direct Debit. You can often set it up online with your tax reference, bank details and a summary of income and spending; otherwise you call HMRC. Interest at 7.75% (as of 2026) runs on the balance until it is paid.

A tax bill you cannot pay in full is stressful, but it is a common and solvable problem. HMRC would rather collect tax over time than chase a business that has stopped trading, and an HMRC payment plan is the standard route. This guide explains how an HMRC Time to Pay arrangement works in 2026, who qualifies, what it costs, and how to keep it on track. It also shows how better invoicing can stop you needing one again. If the debt is your Self Assessment bill, our guide to the Self Assessment tax return explains how the bill is built.

Note: This is general information, not tax or debt advice. If you have several debts, free independent advice services can help.

What an HMRC Time to Pay arrangement is

A Time to Pay arrangement is an agreement to pay an overdue tax debt in instalments. GOV.UK's guide to paying HMRC in instalments describes plans for overdue bills paid monthly by Direct Debit. HMRC checks the plan is affordable and, if it cannot agree one, will ask you to pay the full amount.

It is different from a Budget Payment Plan, which lets you pay weekly or monthly towards your next Self Assessment bill before it is due. A Budget Payment Plan requires you to be up to date with your previous bill; Time to Pay is for when you are already behind.

Which taxes an HMRC payment plan can cover

Tax	Who it applies to	HMRC payment problems line
Self Assessment	Sole traders, partners, landlords, directors with untaxed income	0300 200 3820
VAT	VAT-registered businesses	0300 200 3831
Employer PAYE	Businesses running payroll	0300 200 3819
Corporation Tax	Limited companies	0300 200 3840
Simple Assessment	Individuals sent a Simple Assessment bill	0300 322 7835

The numbers come from HMRC's payment problems contact page, open Monday to Friday, 8am to 6pm. Many people can avoid the phone entirely by using the online service, which checks eligibility first.

Who qualifies for Time to Pay

HMRC does not publish a single test for every case, but its guidance makes the principles clear:

• The debt is genuine and overdue. You know how much you owe, which usually means your returns are filed.
• The plan is affordable. HMRC looks at your income, regular spending and other debts.
• You have used what you can. If you have savings or assets, HMRC expects you to use them to reduce the debt as much as possible.
• For companies, the business must reduce the debt first, for example by releasing stock, vehicles or shares, and directors may be asked to inject personal funds or arrange lending.
• You can pay by Direct Debit from a UK bank account you are authorised to use.

The online service tells you whether you can set up the plan yourself. Larger or more complicated debts, or businesses with several taxes overdue, usually need a conversation with HMRC.

How to set up an HMRC payment plan step by step

1. File any outstanding returns. Late filing penalties are separate from late payment, so file first. Our guide to the Self Assessment late filing penalty shows how much this saves.
2. Work out exactly what you owe. Check your HMRC online account, including any payments on account that fell due at the same time.
3. Build a simple budget. List monthly income, essential spending and other debts. HMRC accepts a Standard Financial Statement prepared with an independent debt adviser as evidence.
4. Decide what you can pay now. A lump sum up front reduces both the plan length and the interest.
5. Gather your reference and bank details. You need the reference number for the tax, such as your UTR, and UK bank details for the Direct Debit.
6. Use the online service to check eligibility and set up the plan. If you are not eligible, call the payment problems line for that tax.
7. Keep the confirmation and diary each Direct Debit date.
8. Stay up to date with new bills. HMRC expects current taxes to be paid on time while the plan runs.

What HMRC will ask you

If you speak to HMRC rather than using the online service, GOV.UK says to be ready to explain:

• Whether you can pay any of the bill in full now.
• How much you can afford to repay each month.
• Any other taxes you owe to HMRC.
• How much you earn and your usual monthly spending.
• Any savings or investments you hold.

Have figures written down before you call. Clear, realistic numbers make it easier for HMRC to agree a plan, and offering a monthly amount you cannot sustain only leads to a missed payment later. If your income comes from invoices, a list of what customers owe you and when they are due to pay is useful evidence of money coming in.

Budget Payment Plan: paying before you fall behind

If you are up to date with your last Self Assessment bill, a Budget Payment Plan lets you pay weekly or monthly by Direct Debit towards the next one. You set it up in your online account under Direct Debit, choose the amount and frequency, and can pause payments for up to 6 months. Payments use your 11-character reference: your 10-digit UTR followed by the letter K. Because it runs before the deadline, no late payment interest arises if the full bill is covered by 31 January.

What a payment plan costs: worked example

Time to Pay has no set-up fee, but interest applies. HMRC's late payment interest rate is the base rate plus 4 percentage points and, according to its published interest rates, has been 7.75% a year since 9 January 2026.

Sam is a self-employed electrician who owes £6,000 of Self Assessment tax. He agrees a 12-month plan of £500 a month.

Step	Calculation	Result
Monthly instalment (capital)	£6,000 / 12	£500
Balance at start and end	£6,000 falling to £0
Average balance (approx.)	(£6,000 + £500) / 2	£3,250
Interest for one year (approx.)	£3,250 x 7.75%	About £252
Total repaid (approx.)	£6,000 + £252	About £6,252

This is a simplified estimate; HMRC calculates interest daily, and the actual figure depends on payment dates. If Sam pays a £1,500 lump sum first and then £375 a month for 12 months, the average balance falls to about £2,440, and the interest to roughly £189. Every pound paid early saves interest.

Time to Pay vs other ways to fund a tax bill

Option	Typical cost	Watch out for
HMRC Time to Pay	7.75% interest (as of 2026), no fee	Must keep up instalments and new bills
Budget Payment Plan	No interest if bill is paid by the deadline	Only before the bill is overdue
Business overdraft or loan	Varies by lender	Credit checks, fees, personal guarantees
Credit card	Often higher than HMRC interest	Debt can grow quickly if only minimum payments are made
Chasing your own unpaid invoices	Free	Takes time; start before the tax deadline

The cheapest option is often the last one. Many tax arrears are really a cash flow problem caused by customers paying late. Our guide to handling an overdue invoice and our summary of UK late payment law explain how to collect what you are owed, including statutory interest.

Worked example: clearing arrears by collecting your own debts

A design agency owes £7,200 in VAT and has £9,600 of unpaid customer invoices, three of them more than 60 days overdue. Before calling HMRC, the owner sends formal reminders and a final notice before legal action on the oldest invoices and collects £5,400 within three weeks. The VAT arrears fall to £1,800 (£7,200 - £5,400), which the business clears in a three-month plan of £600 a month instead of a longer plan on the full amount. HMRC is more likely to agree a plan when you show you are already collecting money owed to you.

What happens if you miss a payment

According to GOV.UK, HMRC will contact you to ask why and will try to adjust or renegotiate the plan where possible. If you know a payment will fail, call before the due date. If a new tax bill arrives that you cannot pay, ask whether it can be added to your existing plan. If a plan collapses and nothing is agreed, HMRC can demand the full balance and move to enforcement, which may include debt collection agencies or, for companies, steps towards insolvency.

If HMRC says no

If HMRC decides the plan you offered is not affordable or that you could pay more, it will ask for the full amount. Do not ignore that letter. Ask what HMRC would accept, look again at savings or assets you could use, and consider talking to a free independent debt adviser, who can prepare a Standard Financial Statement and help you negotiate. Where a business has no realistic prospect of paying, an insolvency practitioner can explain the formal options.

VAT, PAYE and company tax debts

Business taxes follow the same principles but HMRC looks closely at whether the business is viable. For VAT, keep filing every return on time even if you cannot pay; see VAT penalties in the UK for how points and late payment penalties work, and how to file a VAT return for the process. For PAYE, remember that payroll taxes include deductions from employees' wages; employer National Insurance 2026/27 covers the employer side. If a company's debts are beyond rescue, our guide on how to close a limited company explains why striking off is not an option while HMRC is owed money.

How to avoid needing an HMRC payment plan next year

• Set aside tax from every invoice. Move a fixed percentage into a separate account each time a customer pays.
• Invoice promptly and chase on time. Issue invoices the day work finishes in the UK invoice generator, with clear payment terms.
• Use a Budget Payment Plan. Small weekly or monthly payments towards next January's bill spread the load.
• Forecast your cash. A simple cash flow forecast shows the January and July spikes months in advance.
• Remember payments on account. The first January bill for a new business is often 150% of a year's tax.

Worked example: building a tax pot from invoices

Imagine a consultant who invoices £4,000 a month and estimates that income tax and Class 4 National Insurance will take about 25% of profit. If expenses are low, moving £1,000 of each £4,000 payment into a separate account builds £12,000 over a year (£1,000 x 12). If the January bill, including the first payment on account, comes to £10,500, the pot covers it with £1,500 to spare for the July payment. Compare that with a £10,500 Time to Pay plan at 7.75%, where interest alone could run to several hundred pounds over a year. Small, automatic transfers are far cheaper than borrowing from HMRC.

Reading HMRC letters carefully

Once you are in a plan, HMRC may still send automated statements showing the full balance. These usually reflect the debt, not a demand to pay it all at once. Check each letter against your plan confirmation and call the relevant payment problems line if anything does not match, rather than assuming the plan has been cancelled.

Use HMRC Time to Pay early, then fix the cash flow

An HMRC Time to Pay arrangement is a practical way to clear a tax debt in manageable monthly payments, but it costs interest and depends on staying current with new bills. File on time, ask early, pay what you can up front, and then fix the cash flow that caused the problem. Getting paid faster starts with clear invoices: create yours in the free invoice generator and track which are still unpaid. It is free, needs no account, and exports a print-ready PDF invoice.