HMRC Time to Pay: How to Spread Your Tax Bill if You Can't Afford It

Quick answer

If you can't pay your UK tax bill in full by the deadline, HMRC's Time to Pay (TtP) Service lets you spread it over manageable monthly instalments. The key facts:

• Apply before the deadline to avoid late-payment penalties (5% surcharges at 30 days, 6 months, 12 months).
• Under £30,000: set up online via your Government Gateway, no phone needed.
• Over £30,000: phone HMRC (0300 200 3835 for Self Assessment).
• Interest 7.5% accrues throughout — separate from the original tax.
• Direct Debit mandatory — monthly auto-payments.

Time to Pay is a standard administrative arrangement, not a hardship procedure. HMRC offers it routinely.

When to use Time to Pay

Use TtP if any of these apply:

• You owe Self Assessment tax (income tax + Class 4 NI) and can't afford to pay in full by 31 January.
• You're a VAT-registered business and can't pay a quarterly VAT return.
• You're an employer and can't pay PAYE for a payroll period.
• You're a limited company facing a Corporation Tax bill above your immediate cash flow.

You should not use TtP if:

• You can afford to pay in full — the 7.5% interest is real cost.
• Your business is in serious financial trouble — speak to an insolvency practitioner first; TtP can't fix structural problems.
• Your tax bill is wrong — dispute it first before agreeing to pay.

Setting up TtP online (under £30,000)

For Self Assessment debts under £30,000:

1. Log into Government Gateway (gov.uk/personal-tax-account).
2. Self Assessment → "Set up a payment plan".
3. Specify the amount owed and proposed monthly payment.
4. HMRC calculates the plan (typically 6-12 instalments).
5. Direct Debit set up with your bank account.
6. Confirmation issued in writing.

Process takes 10-15 minutes. No phone call. No documentation needed beyond your Government Gateway access.

Phone TtP (over £30,000 or special cases)

For larger debts or specific situations:

Self Assessment debts: 0300 200 3835 (Mon-Fri 8am-6pm). VAT debts: 0300 200 3700. PAYE debts (employers): 0300 200 3401. General debt management: 0300 200 3300.

HMRC asks:

• Your income (latest payslip / Self Assessment).
• Essential outgoings (rent/mortgage, council tax, utilities, basic living).
• Discretionary spending (subscriptions, leisure — they'll suggest cuts).
• Other debts (credit cards, loans) and their priority.
• Assets (property, savings — but main home protected).
• Future income changes expected.

HMRC then proposes a monthly amount — usually around 30-50% of your disposable income after essential outgoings. You can negotiate.

Worked example — Mark, £8,000 SA tax debt

Mark filed his 2024/25 Self Assessment and owes £8,000. He has £4,000 in his current account but expects to need most of it for car repairs and a holiday already booked.

Options:

Option A — Pay in full from emergency fund

• Pay £8,000 on 31 January.
• Tax bill cleared.
• Emergency fund depleted.
• Stress: high.

Option B — Set up Time to Pay online

• Apply for TtP via Government Gateway before 31 January.
• Plan: £1,000/month for 8 months (Feb-September).
• Interest at 7.5% APR on declining balance.
• Total interest cost over 8 months: ~£250.
• Total to repay: £8,250.
• No late-payment penalties.

Option C — Miss the deadline

• 30 days late: 5% surcharge = £400.
• 6 months late: another 5% = £400 more.
• 12 months late: another 5% = £400 more.
• Plus 7.5% interest throughout.
• Total within 12 months: ~£1,600 of penalties + interest on top of the £8,000.

Option B (TtP) is dramatically cheaper than Option C (missed deadline) — £250 vs £1,600+.

What gets included in TtP

Yes, can include:

• Income tax (Self Assessment).
• Class 4 NI (self-employed).
• Capital Gains Tax (when reported on SA).
• High Income Child Benefit Charge.
• VAT.
• PAYE income tax + employee NI (for employers paying employees).
• Employer Class 1 NI.
• Corporation Tax.

No, can't include:

• Stamp Duty Land Tax — separate arrangements via SDLT helpline.
• Inheritance Tax — separate (can be paid in 10 yearly instalments for property).
• Penalties from previous tax years — usually separate.
• Outstanding amounts already on a previous arrangement that defaulted.

What if you can't keep up with TtP?

If you miss a Direct Debit:

1. Contact HMRC immediately to renegotiate or pause. Don't wait.
2. HMRC may extend the plan.
3. If the default is serious or unexplained, HMRC may cancel the arrangement and demand the balance immediately, plus enforcement action.

HMRC enforcement options if the plan fails:

• Debt collection agent instructed.
• Direct recovery from bank account (Direct Recovery of Debts powers).
• Attachment of earnings order via your employer.
• Bankruptcy or company winding-up petition.

The escalation typically takes 3-6 months from a missed payment — so contact HMRC early.

Interest rate explained

The 7.5% HMRC interest rate is set by reference to the Bank of England base rate + 2.5%. It moves with BoE decisions.

• HMRC interest on late tax: Bank Rate + 2.5%.
• HMRC interest on overpaid tax (refunds): Bank Rate + 0.5%.

The asymmetric 2-percentage-point spread is to discourage late payment — HMRC wants people to pay early rather than late.

For comparison: most personal loans in 2026 are 8-15% APR; credit cards 20-30% APR. TtP interest at 7.5% is cheaper than most personal credit alternatives — making it a financially sensible way to spread a temporary cash crunch.

Tax bill negotiation — what HMRC won't do

A common misconception: HMRC will not typically:

• Reduce or waive the principal tax owed (the tax is what it is).
• Waive interest on the basis of hardship (only in extreme cases).
• Waive late-payment penalties unless you have a "reasonable excuse" (illness, bereavement, etc. — strict definition).
• Take payment in kind (shares, property).

What HMRC will do:

• Set up a payment plan.
• Pause payments temporarily during specific hardship (e.g. job loss).
• Accept early settlement at a discount? No — pay the principal in full.

If you think the tax is wrong, dispute it before paying — HMRC suspends collection during a formal dispute.

TtP and Self Assessment registration

If you have to set up TtP, it shouldn't affect your Self Assessment registration going forward. HMRC tracks TtP arrangements separately from compliance status.

But multiple TtP arrangements over several years signal cash-flow problems — HMRC may shift you to closer monitoring for future years.

Common mistakes

1. Waiting until after the deadline — then it's too late to avoid penalties.
2. Not having Direct Debit ready — TtP requires it.
3. Missing a payment without telling HMRC — triggers immediate enforcement risk.
4. Paying a third-party "tax debt company" — they take 25-50% fees. Always go direct via gov.uk.
5. Trying to negotiate the principal — HMRC won't reduce the tax itself.

How to apply

For Self Assessment:

1. Sign into Government Gateway.
2. Self Assessment → "Set up a payment plan".
3. Apply before 31 January for it to count as agreed-on-time.

Or phone the relevant tax line (numbers above) for amounts over £30,000.

Try the numbers

Sources

• gov.uk: If you can't pay your tax bill on time
• gov.uk: Set up a Self Assessment payment plan
• HMRC: Time to Pay arrangement
• HMRC: Interest rates for late and early payment