HMRC Tax Debt: Time to Pay Arrangements & Your Rights

⚠️ HMRC Has Exceptional Collection Powers

Unlike other creditors, HMRC can:

  • • Take money directly from bank accounts (Direct Recovery)
  • • Bypass court for some enforcement actions
  • • Make you personally liable for company tax debts
  • • Use criminal prosecution for serious cases
  • • Wind up companies for debts as low as £750

But they MUST negotiate Time to Pay if you engage with them.

Call HMRC Payment Support: 0300 200 3822

Michael Roberts

Written by Michael Roberts

Tax Debt Specialist, Former HMRC Officer

✓ Reviewed by Jennifer Walsh, Chartered Tax Advisor

Self Assessment

Income tax and Class 4 NICs for self-employed

Due: 31 January

VAT

Value Added Tax for businesses

Quarterly deadlines

PAYE & NICs

Employee tax and National Insurance

Monthly by 22nd

Corporation Tax

Limited company profits tax

9 months after year-end

Immediate Actions When You Can't Pay HMRC

Golden Rule

Never ignore HMRC. They're more flexible if you contact them before the payment deadline. Silence triggers automatic enforcement.

Today's Priority Actions

  1. File all outstanding returns - Even if you can't pay, file on time to avoid penalties
  2. Calculate exactly what you owe - Check your online account or call HMRC
  3. Gather financial information - Income, expenses, assets for negotiation
  4. Contact HMRC immediately - 0300 200 3822 for payment support
  5. Set up Time to Pay - Online for under £30k, phone for larger amounts

What Information HMRC Will Need

  • Your tax reference (UTR, VAT number, PAYE reference)
  • Details of what you owe
  • Reason for payment difficulties
  • Monthly income and expenses
  • Details of other debts
  • Proposed payment offer
  • Bank account details for Direct Debit

Emergency Situations

Contact HMRC urgently if:

  • You've received a winding-up petition
  • Bailiffs are threatening to visit
  • You've received a Direct Recovery notice
  • Criminal investigation is mentioned
  • Your bank account is frozen

HMRC Time to Pay Arrangements

Time to Pay (TTP) is HMRC's payment plan system, allowing you to spread tax payments over time.

Online Time to Pay (Self-Service)

You can set up online if:

  • You owe £30,000 or less
  • You have no other payment plans with HMRC
  • All tax returns are filed
  • It's within 60 days of payment deadline
  • You can pay within 12 months

Time to Pay Calculator

Estimate your monthly payments:

Phone Time to Pay (Complex Cases)

Call 0300 200 3822 if:

  • You owe more than £30,000
  • You need longer than 12 months
  • You have existing HMRC arrangements
  • It's for business taxes (VAT, PAYE, Corporation Tax)
  • You're facing enforcement action

What HMRC Considers

Factor Positive Impact Negative Impact
Payment History Good compliance record Previous defaults
Contact Proactive approach Ignored letters
Returns All filed on time Outstanding returns
Reason Genuine hardship Poor planning
Future Clear recovery plan Ongoing issues

HMRC Enforcement Powers

HMRC has stronger powers than regular creditors. Understanding the escalation helps you act in time.

1 Reminders and Demands

Initial letters requesting payment. Interest starts accruing.

Your action: Pay or set up Time to Pay immediately.

2 Debt Collection Agencies

HMRC may pass debt to collection agencies for contact.

Your action: Deal directly with HMRC, not agencies.

3 Direct Recovery (DRD)

Taking money directly from bank accounts (£1,000+ debts).

Your action: Respond within 30 days to object or negotiate.

4 Taking Control of Goods

Bailiffs visit to seize assets for sale.

Your action: Negotiate before visit, know bailiff rights.

5 County Court Proceedings

CCJ for debt recovery, affecting credit rating.

Your action: Attend court, present payment proposal.

6 Insolvency Proceedings

Bankruptcy (individuals) or winding-up (companies).

Your action: Urgent negotiation or formal insolvency.

7 Criminal Prosecution

For suspected fraud or serious evasion only.

Your action: Get specialist legal advice immediately.

Direct Recovery of Debts (DRD)

HMRC can take money directly from accounts if:

  • You owe £1,000 or more
  • You've been contacted at least 4 times
  • They've given 30 days' notice
  • You have over £5,000 across all accounts (protected minimum)

DRD Protection

HMRC must leave at least £5,000 in your accounts. Joint accounts need both parties' consideration. You can object on hardship grounds.

Negotiating with HMRC

HMRC officers have discretion in arrangements. Successful negotiation requires preparation and honesty.

Preparation Checklist

  • ✓ Complete accurate income and expenditure form
  • ✓ List all debts with balances and monthly payments
  • ✓ Explain reason for difficulties (illness, business downturn, etc.)
  • ✓ Provide evidence (medical certificates, accounts, bank statements)
  • ✓ Calculate realistic payment offer
  • ✓ Show how future tax will be paid on time

Negotiation Tips

  1. Be honest: HMRC has extensive data access
  2. Be realistic: Offer what you can genuinely afford
  3. Be specific: Provide exact figures, not estimates
  4. Be cooperative: Respond quickly to requests
  5. Be persistent: If refused, ask for manager review

What HMRC Can Offer

  • Standard TTP: Up to 12 months instalments
  • Extended TTP: Longer terms in exceptional cases
  • Suspension: Temporary pause on collections
  • Remission: Rare write-off in extreme hardship
  • Penalty cancellation: If reasonable excuse exists

If HMRC Refuses

You can:

  • Request manager review
  • Make formal complaint
  • Contact your MP
  • Seek help from TaxAid (0345 120 3779)
  • Consider formal insolvency

Business Tax Debts

Business tax debts require special attention due to personal liability risks and faster enforcement.

VAT Debt

  • Most serious business tax debt
  • HMRC rarely compromises on VAT
  • Can trigger winding-up quickly
  • Consider VAT deferment scheme if eligible
  • Ensure future returns filed even if nil

PAYE/NICs Debt

  • Directors personally liable in some cases
  • Monthly deadlines critical
  • Set up Direct Debit for current obligations
  • Consider reducing workforce costs
  • Priority over other business debts

Corporation Tax

  • 9-month payment deadline from year-end
  • Quarterly instalments for large companies
  • Group relief may help
  • Loss carry-back possible
  • R&D credits can offset

Business Payment Support Service

HMRC Business Payment Support

Specialist team for businesses struggling with tax payments:

Main helpline 0300 200 3835
Opening hours Mon-Fri 8am-6pm
What they offer Tailored payment plans for businesses

Personal Liability for Company Tax

Directors and individuals can become personally liable for company tax in certain circumstances.

When Directors Become Liable

  • Personal Liability Notices: For unpaid company NICs
  • Preference payments: Paying other creditors over HMRC
  • Fraudulent trading: Continuing while insolvent
  • Phoenix companies: Similar business after insolvency
  • Overdrawn director's accounts: Treated as income

Protecting Yourself

  1. Keep detailed board minutes
  2. Take professional advice when struggling
  3. Don't prefer other creditors
  4. Consider voluntary liquidation if insolvent
  5. Resign if other directors acting improperly

Warning

HMRC increasingly pursues directors personally. If your company owes significant tax, get specialist advice before it fails.

Tax Debt and Insolvency Options

Formal insolvency can deal with tax debts, but HMRC's position varies by solution.

How Each Solution Handles Tax Debt

Solution HMRC Position Success Rate
IVA Often votes against unless good recovery Moderate
Bankruptcy Tax debts written off High
DRO Includes tax debts under £50k High if qualify
CVA Requires 75%+ of debt to agree Low-Moderate
Liquidation Company dissolved, debts end Certain

HMRC in IVAs

HMRC's IVA voting policy:

  • Usually wants 100p in £ for PAYE/VAT
  • More flexible on income tax/Class 4 NICs
  • Requires ongoing compliance
  • May accept if only realistic option
  • Get specialist IVA provider experienced with HMRC

Penalties and Interest

Understanding HMRC's penalty regime helps minimize additional costs.

Current Rates (2026)

  • Late payment interest: 7.75% per year
  • Late filing penalty: £100 initially, escalating
  • Late payment penalty: 5% at 30 days, 6 months, 12 months
  • Inaccuracy penalties: 0-100% of tax depending on behavior

Penalty Timeline Example (Self Assessment)

Date Event Penalty
1 February 1 day late filing £100
2 March 30 days late payment 5% of tax
1 May 3 months late filing £10 daily (max £900)
31 July 6 months late payment Another 5%
31 January 12 months late 5% more or 100% of tax

Appealing Penalties

You can appeal if you have "reasonable excuse":

  • Serious illness or bereavement
  • Unexpected business disruption
  • Fire, flood, or theft
  • Computer or software failure
  • HMRC error or delay

NOT reasonable excuses:

  • Lack of funds (unless exceptional)
  • Relying on another person
  • Being too busy
  • Not understanding the rules

Financial Hardship and HMRC

HMRC has provisions for genuine hardship cases, though write-offs are rare.

Demonstrating Hardship

Provide evidence of:

  • Serious illness affecting ability to work
  • Mental health conditions
  • Disability impacting earnings
  • Family crisis or bereavement
  • Natural disaster or fire
  • Victim of crime or fraud

Support Services

  • HMRC Extra Support Team: For vulnerable taxpayers
  • TaxAid: 0345 120 3779 - Free tax advice for low incomes
  • Tax Help for Older People: 0845 601 3321
  • Citizens Advice: General benefits and debt help

Remission (Write-off)

HMRC may write off tax in exceptional cases:

  • Official error causing hardship
  • Taxpayer seriously ill with no recovery prospect
  • Collection costs exceed debt
  • Compassionate circumstances

Frequently Asked Questions

What is HMRC Time to Pay?

Time to Pay is an arrangement allowing you to pay tax debts in instalments over up to 12 months (sometimes longer). You can set up online for debts under £30,000 if you have no other tax debts and filed all returns. Larger debts require calling HMRC on 0300 200 3822.

Can HMRC take money directly from my bank account?

Yes, through Direct Recovery of Debts (DRD), HMRC can take money from accounts if you owe £1,000+ and haven't responded to communications. They must leave £5,000 across all accounts and give 30 days' notice. Joint accounts require additional procedures.

What happens if I can't pay my tax bill?

Contact HMRC immediately on 0300 200 3822. Ignoring tax debts leads to: penalties and interest, enforcement action, asset seizure, bankruptcy proceedings, or winding up petitions for companies. HMRC is often willing to negotiate if you engage early.

Can HMRC make me bankrupt?

Yes, HMRC can petition for bankruptcy if you owe £5,000+ (or winding up for companies owing £750+). They typically use this for persistent non-payers or where fraud is suspected. You'll receive warning letters first and can usually negotiate Time to Pay to avoid this.

Are HMRC debts included in IVAs?

HMRC debts can be included in IVAs but HMRC often votes against proposals offering less than 100p in the pound. They're more likely to accept if you're up to date with current obligations and the IVA offers reasonable recovery. PAYE and VAT debts are harder to include.

How much interest does HMRC charge on late payments?

HMRC charges 7.75% annual interest (as of 2026) on late payments. Additional penalties apply: 5% after 30 days, another 5% after 6 months, and 5% more after 12 months. Interest runs from the original due date until paid in full.

Get Help with HMRC Debts

Don't let tax debt spiral. Get expert help negotiating with HMRC and exploring your options.