HMRC Time to Pay or a tax loan: an honest comparison

Time to Pay is HMRC's name for an instalment arrangement on tax you owe. It is not a product you apply for so much as an agreement HMRC decides to give, and HMRC's starting position is that you pay what you can now and clear the rest as quickly as the business can afford.

• Timing. Contact HMRC before the payment deadline, or as soon as you know you cannot pay. Arrangements asked for early are more readily agreed.
• Online or by phone. HMRC runs an online service for smaller Self Assessment, VAT and employer PAYE debts, with the eligibility limits and conditions set out on GOV.UK's page on setting up a payment plan. Corporation tax, larger debts and anything outside those conditions go through HMRC's Payment Support Service by phone.
• What HMRC asks. Expect questions on income and outgoings, cash in the bank, assets, other debts and why the bill cannot be paid. HMRC may ask whether you can raise money elsewhere and will expect any lump sum you can afford to be paid up front.
• Conditions. All returns need to be filed, instalments are usually taken by direct debit, and new tax falling due during the plan must be paid on time. Missing either can end the arrangement, after which HMRC can pursue the whole balance.
• Length. HMRC sets the term case by case. Many business arrangements run for months rather than years, and a longer plan needs a clear explanation of why the business cannot pay faster.

Time to Pay is not free money. HMRC charges late payment interest on the unpaid balance from the original due date until it is cleared. Since April 2025 the rate has been set at Bank of England base rate plus 4 percentage points, and HMRC publishes the current figure on its late and early payment interest rates page. The interest is calculated daily on what is still outstanding, so it falls as you pay the balance down.

Penalties are the other half of the cost. For VAT, late payment penalties build up the longer a bill stays unpaid, but HMRC's guidance on VAT late payment penalties explains that agreeing a payment plan stops further penalties accruing, provided you keep to it. For Self Assessment, setting up a plan before the late payment penalty date normally stops that penalty being charged. Leaving the debt unpaid with no arrangement is the most expensive choice of all.

A tax loan pays HMRC in full, so no late payment interest or penalty arises on that bill. Instead you pay the lender's interest, often an arrangement fee, and sometimes a broker fee. Pricing depends on the lender, your trading figures, credit history and the term. For most small and medium-sized businesses, unsecured commercial tax funding costs more in total than HMRC late payment interest on the same balance over the same period. That is why Time to Pay usually wins on price alone.

Illustration. A company owes a £40,000 VAT bill and can afford to clear it in equal monthly amounts over ten months. Under Time to Pay it pays the £40,000 plus HMRC interest on a reducing balance, and signs nothing personally. With a ten-month tax loan it pays the £40,000 plus the lender's interest and fees, and a director usually gives a personal guarantee. The sensible comparison is total pounds repaid under each, side by side, plus the value you place on the loan's certainty. The figures are hypothetical and not a quote.

Tax treatment can shift the comparison slightly. Interest on business borrowing is generally an allowable cost, as our guide to whether business loan interest is tax deductible explains; your accountant can confirm how HMRC interest and loan interest each apply to your business.

• The shortfall has an obvious, temporary cause, such as a delayed customer payment or an unusually large quarter, and cash flow recovers soon after.
• You can offer a realistic plan and a sensible first payment.
• You have not broken an HMRC arrangement before.
• You do not want to give a personal guarantee, or the directors' personal position makes one unwise.
• The business's credit profile or recent accounts mean a lender would offer only expensive short-term money.
• You are comfortable sharing the business's finances with HMRC.

If those points describe you, contact HMRC first. You can always come back to borrowing if HMRC says no.

• HMRC declines or proposes a plan you cannot keep. Agreeing to instalments you know you will miss is worse than not agreeing at all, because a default usually brings immediate recovery action.
• You need a longer or smoother spread. A lender may be able to offer a term that suits the business's cash cycle, for example running a corporation tax loan over the year rather than the shorter period HMRC will accept.
• A clean tax record matters right now. Buyers in due diligence, landlords, other lenders and some public-sector buyers look at whether tax is up to date. Clearing the bill can be worth the extra cost during a sale, a refinance or a major tender.
• A previous arrangement went wrong. HMRC is warier of second arrangements, whereas some lenders will look at the business's current trading instead of its history with HMRC.
• You would rather keep the business's finances between you and a lender. Some owners prefer a commercial agreement with a fixed schedule to HMRC's scrutiny of every outgoing.

For quarterly VAT specifically, our page on VAT loans explains how repayments are usually timed to finish before the next return. For sole traders and partners facing a balancing payment and payment on account together, see income tax loans. Borrowing of £25,000 or less by sole traders and small partnerships can be regulated consumer credit, which brings additional protections.

Time to Pay is open to any business or individual who owes HMRC, has filed the relevant returns and can show the debt will be cleared from future income; HMRC decides each case on affordability rather than on a lender-style credit assessment. A tax loan depends on a lender's view of the business: most want a trading history of at least a year or two, recent bank statements showing the repayments are affordable, reasonable business and director credit, and no unmanaged arrears. Limited companies, LLPs, partnerships and sole traders can all apply, though fewer lenders fund sole traders. A business that is already insolvent or cannot afford either set of instalments should take advice rather than borrow.

Time to Pay needs no security and no personal guarantee; HMRC relies on the arrangement itself and its recovery powers if you default. Most tax loans for small and medium-sized businesses are unsecured, but lenders usually ask a director to give a personal guarantee, so the risk moves from HMRC to you personally. For larger liabilities, some lenders will lend against business assets under a debenture, or against property, which can support a longer term or a bigger sum but puts those assets at risk. If a guarantee is the sticking point, personal guarantee insurance may soften it, and Time to Pay remains the way to avoid one altogether.

The main alternatives to Time to Pay and a tax loan are forms of finance that fix the cash flow behind the bill, such as invoice finance, revolving credit, debt consolidation or releasing cash from equipment you own through asset refinancing.

Repeated tax shortfalls usually point to something else: customers paying slowly, margins that have not kept up with costs, or VAT being spent as working capital between returns. A one-off loan or plan treats the symptom. Options that address the cause include invoice finance where slow-paying customers are the issue, a revolving credit facility sized for seasonal peaks, moving VAT receipts into a separate account each month, or a VAT accounting scheme your accountant says suits you. Where several short-term debts have built up alongside the tax, debt consolidation can sometimes replace them with one manageable repayment.

Ignoring a tax bill is the one choice that is clearly wrong. Interest and penalties keep running, and HMRC's guidance on unpaid tax bills sets out the escalation: debt collection agencies, taking control of goods, recovering money directly from bank accounts in some cases, and court or insolvency proceedings against the business. Contacting HMRC or a lender early keeps both routes open.

An online Time to Pay plan can often be set up in a single session if your debt is within HMRC's online limits; a phone arrangement typically takes one call or a short series of calls, longer if HMRC asks for more information. A tax loan usually takes a few days to two weeks from a complete application, depending on how current your accounts are, whether the lender can read your bank data directly and how many directors must sign. Secured tax funding takes longer. Either way, start before the due date: HMRC treats early contact more favourably, and a lender needs time to pay HMRC before penalties begin.