HMRC Time to Pay Arrangements or Business Loans: How to Pay Your Tax Bill

When your cash flow doesn’t line up with your taxes, working out how to meet your obligations can be stressful. If you’re struggling to meet payment deadlines for VAT, corporation tax, or self-assessment, HMRC offers a form of payment plan, known as a Time to Pay (TTP). Businesses also have the option of using a tax loan to pay off their tax bill. Both options provide a way to address tax debt, but they differ in terms of flexibility, speed, and financial implications for your business.

In this guide, we’ll explore the key differences between TTP arrangements and business loans to help you decide which option is best for your business.

What is an HMRC Time to Pay Arrangement?

A Time to Pay arrangement is an instalment plan offered by HMRC that allows individuals and businesses to spread tax payments over an agreed period. It is available for a range of taxes, including VAT, corporation tax, PAYE, and self-assessment income tax.

Key features of TTP arrangements

• Case-by-case basis: TTP arrangements are assessed individually. HMRC requires that all tax returns are up to date so they can accurately calculate the outstanding tax owed.
• Feasibility of payment: HMRC will only agree to a TTP if they believe the taxpayer can realistically meet the repayments, including any new taxes due during the TTP period.
• Short-term solution: The TTP period is kept as short as possible to ensure that the debt is repaid sooner rather than later.
• No tax reduction: Under no circumstances will HMRC reduce the tax owed as part of the TTP arrangement. The agreement only provides flexibility in payment schedules, not in the amount owed.

It’s also important to note that HMRC can withdraw a TTP if:

• New information arises that challenges the basis for the TTP agreement.
• The customer has provided inaccurate or misleading information to HMRC.
• The customer fails to meet the agreed payments or doesn’t adhere to the terms of the TTP arrangement.
• HMRC identifies any other risk or concern that puts the tax owed in jeopardy.

What is a business loan for tax?

A short term business loan provides upfront funding that can be used to pay tax bills or cover other expenses. These loans, often referred to as tax loans, are designed for businesses needing immediate cash flow to meet obligations like VAT loans or corporation tax.

1. Quick access: Many lenders, such as iwoca, offer fast approvals, with funds often available within 24 hours.
2. Predictable repayments: Fixed repayment schedules make it easier to plan your finances.
3. Versatility: Unlike TTP, a loan can be used for a range of business needs, not just tax debts.
4. Variable interest rates: Rates depend on your creditworthiness and lender policies. In some cases, they may be lower than HMRC’s late payment interest rates.

How are assets considered in Time to Pay Arrangements?

When agreeing to a Time to Pay (TTP) arrangement, HMRC considers the taxpayer's ability to liquidate assets to reduce the outstanding debt. 

HMRC expects businesses to explore ways to release assets, such as:

• Selling stock or equipment.
• Liquidating shares.
• Directors injecting personal funds into the business.
• Extending credit lines 

If HMRC identifies that assets can be reasonably liquidated, they will expect this to occur before approving a TTP arrangement​.

By looking at the assets you have available, HMRC aims to make sure that a TTP is only granted when it is truly necessary. That is to say, if you have a mountain of stock waiting to be sold, HMRC would rather you liquidate those products first, rather than entering into a debt agreement with you when you could repay sooner.

This can make TTP arrangements a potential headache for businesses with assets but facing short-term cash flow issues that they wish to resolve without having to let go of valuable assets.

Example scenario: combining TTP with a business loan

A small IT services firm owes £25,000 in VAT and has negotiated a TTP arrangement to spread payments over six months. 

However, they experience unexpected cash flow issues due to late client payments. To avoid defaulting on the TTP agreement, the firm takes out a short term loan to cover two payments, then repays the loan when the client payments clear. 

This ensures they stay compliant with HMRC while keeping cash on hand to maintain operations.

Negotiating a Time to Pay arrangement with HMRC

If you decide on a TTP, here’s how to proceed:

1. Contact HMRC early: Call HMRC’s Time to Pay helpline before your tax bill becomes overdue.
   
   • Corporation Tax: HMRC Corporation Tax Time to Pay Contact Number: 0300 200 3835.
   • VAT or PAYE: VAT Time to Pay Helpline: 0300 200 3836​.
2. Prepare financial details: Be ready to disclose your income, expenses, assets, and any efforts you’ve made to pay the bill​.
3. Agree on terms: HMRC typically expects 50% of disposable income to be paid into the arrangement. They will review your finances to ensure payments are manageable​.
4. Keep to the agreement: Missing payments may result in HMRC cancelling the arrangement and initiating enforcement action.

Streamline your tax bill with iwoca

iwoca’s Flexi-Loan offers a fast and flexible solution for managing tax payments. 

• Quick access to funds: Receive funds within 24 hours to meet urgent deadlines.
• Tailored Terms: Borrow from £1,000 to £1,000,000 with repayment terms that fit your business needs.
• No early repayment fees: Save on interest by repaying early.

Find out how much you could borrow with our business loan calculator.

‍