Should any taxpayer find they are struggling to pay their tax bills by the usual deadlines, there are official ways to spread the payments.
How such payments are made depends upon the type of tax owing, the amount outstanding and whether the taxpayer is employed, self-employed or a company.
Regardless of the plan undertaken, interest charges will accrue, although penalties are typically not levied.
Time to Pay (TTP) scheme
HMRC’s most recently published Annual Report and Accounts (2024/25) states that over 913,000 customers were paying taxes under a TTP arrangement, with total tax owing of approximately £6.16 billion (total debt balance = £44 billion of which 14% is being paid under an instalment process).
A TTP arrangement, whilst not an automatic right, is a formal negotiated agreement allowing payment of unpaid tax to be made over a period of typically 12 monthly instalments.
Longer arrangements can be made with HMRC manager approval but will only be granted in ‘exceptional cases’. The self-employed can apply for a TTP arrangement online provided that the latest tax return has been filed and the debt is less than £30,000; the system permits 12 months of instalment payments by default.
The application must be made within 60 days of the payment deadline (i.e. for a self-employed taxpayer, the agreement must be in place by 31 March) and the taxpayer must not have any other payment plans or debts with HMRC. Applications that do not fulfil the online requirements need to be made by phoning HMRC initially and, if accepted, then a formal written agreement will be issued. Details of income and expenses must be declared.
TTP proposals can be rejected (or rescinded) for various reasons such as a history of late submission of returns, failure to respond to previous correspondence or not keeping HMRC informed of the taxpayer’s financial situation if a TTP is already in place. If a proposal is rejected, the taxpayer may face additional penalties and interest charges, and HMRC may take further action to recover the debt.
TTPs can also be used for VAT, PAYE, Class 4 NIC and corporation tax arrears (although the conditions differ and are stricter). For example, HMRC requires proof that the business is a viable going concern demanding full financial disclosure, including bank statements and cashflow forecasts.
PAYE coding adjustments (employees)
If the taxpayer is employed or receives a taxable pension and the underpayment is £3,000 or less, HMRC will automatically collect the outstanding tax via restriction in the taxpayer’s code for the following year (unless the box on the tax return specifically asking not to collect this way has been ticked).
This method of collection enables the debt to be repaid over 12 months interest-free.
Short-term deferral
In very limited cases, HMRC may allow short-term deferral of a payment without a formal TTP arrangement, typically for only a few days or weeks. HMRC needs to be contacted as soon as possible, and this would be relevant if the taxpayer was suddenly involved in an accident, for example.
Budget Payment Plan (BPP)
The BPP is a voluntary scheme for self assessment taxpayers enabling regular monthly or weekly payments by direct debit towards the next tax bill. The taxpayer chooses how much to pay and how often. A BPP can only be used by taxpayers who are up to date with their tax position at the time of application. Note that, although this plan may give peace of mind that a future tax bill will be paid, the taxpayer is not given any interest and therefore they would be better saving into a deposit account.
Practical point
If self assessment tax is outstanding on three specific trigger dates, a 5% late payment penalty is charged. These dates are usually 30 days, six months and 12 months after the due date for the tax. Therefore, for a payment due on 31 January 2026, the 5% penalty can be avoided by setting up a TTP arrangement before 2 March 2026 and adhering to the terms of the payment plan, although interest will still be charged.
Partner note:
S59G TMA 1970
HMRC Debt Management and Banking Manual DMBM800030
HMRC Self Assessment Manual SAM61380
HMRC’s 2024/25 Annual Report: https://www.gov.uk/government/publications/hmrc-annual-report-and-accounts-2024-to-2025
