The primary legislative basis for HMRC Time to Pay (TTP) arrangements resides in Schedule 56, Paragraph 10 of the Finance Act 2009 (FA 2009). The statute provides that an arrangement takes effect when a taxpayer fails to pay an amount of tax on time, formally requests a payment deferral, and HMRC agrees to that deferral period.
Entering into a TTP arrangement directly impacts the taxpayer’s exposure to late payment penalties. Section 108 of FA 2009 dictates that a taxpayer is not liable to a penalty for failing to pay tax if they would otherwise become liable to that penalty between the date they make the TTP request and the end of the agreed deferral period.
The First-tier Tribunal in Pracyva Ltd v HMRC [2023] UKFTT 1272 (TC) confirmed a crucial timing principle regarding penalty suspension:
“The critical event is that the taxpayer makes a request before the due date… a taxpayer is not liable to a penalty in respect of failure to make a payment on a particular date if a request to defer payment of an amount is made by the taxpayer to HMRC before that date even if HMRC do not agree to that deferral until after that date.
Conversely, the tribunal in Desser & Co Ltd v HMRC [2023] UKFTT 653 (TC) ruled that taxpayers cannot rely on Section 108 if they unilaterally reduce their payments without HMRC’s explicit prior agreement. Simply making partial payments towards arrears does not constitute an agreed HMRC Time to Pay arrangement.
Establishing Eligibility: “Can’t Pay” vs “Won’t Pay”
HMRC views TTP as a short-term concession designed to give a business or individual breathing space to bring their tax affairs up to date. When reviewing proposals, Debt Management officers strictly categorise taxpayers into “can’t pay” and “won’t pay” brackets.
HMRC defines a “can’t pay” customer as one who actively wants to make payment but currently lacks the means to do so. In contrast, HMRC will refuse TTP requests if they determine the taxpayer holds sufficient funds but prefers to prioritise other creditors, such as repaying a director’s loan account.
Crucially, HMRC will categorically refuse to agree to a TTP arrangement if the taxpayer has outstanding tax returns. Officers cannot ascertain the true liability without submitted returns, meaning any agreed instalment plan might fail to cover the actual debt. Taxpayers must submit all overdue returns before HMRC will formally negotiate the payment schedule.
Debt Thresholds and Application Procedures
HMRC streams TTP applications based on the quantum of the outstanding debt. The level of financial disclosure required from the taxpayer scales directly with the amount owed.
Table: 2026/27 HMRC TTP Application Thresholds
| Debt Value | Application Route & Requirements | Relevant Guidance |
|---|---|---|
| Under £30,000 (Self-Assessment) | Taxpayers can use the online “self-serve” portal without speaking to an officer. The arrangement must be set up within 60 days of the payment deadline and completed within 12 months. All latest returns must be filed. | |
| Under £250,000 | Taxpayers must explain why they cannot pay in full, state how much they can pay immediately, and outline their future compliance proposals. | |
| £250,000 to £750,000 | Requires comprehensive disclosure. HMRC typically requires an Income and Expenditure analysis and may request a Case Summary Form for authorisation if the debt exceeds £350,000. | |
| Over £750,000 | Handled by specialist Large Debt Teams. HMRC will aggressively challenge the taxpayer’s ability to raise funds, including questioning the disposal of assets (stocks, property) and identifying whether other HMRC debts exist. |
Practical Mechanics: Direct Debits and Interest
When HMRC agrees to a TTP plan, they mandate that the taxpayer makes the ongoing instalment payments via Direct Debit, except in highly exceptional circumstances. Direct Debits ensure payments are allocated correctly and reduce the administrative burden of chasing missed manual transfers.
Advisors must ensure clients understand that a TTP arrangement only protects against late payment penalties; it does not freeze interest. Late payment interest continues to accrue daily on the outstanding balance throughout the life of the arrangement. As of 9 January 2026, the HMRC late payment interest rate stands at 7.75%.
Consequences of Breaking an Arrangement
If a taxpayer defaults on a TTP agreement, either by missing an instalment or failing to comply with a stipulated condition—HMRC holds the authority to cancel the agreement entirely.
When HMRC cancels a broken TTP arrangement, they calculate and charge late payment penalties retrospectively, treating the taxpayer exactly as if the TTP arrangement had never existed. For VAT periods where tax is due on or after 31 May 2025, breaking an agreement exposes the taxpayer to the new penalty regime, which applies a 3% penalty if the tax remains unpaid after 15 days, escalating to 10% for the second penalty.
Consider reviewing the specific corporate insolvency implications if HMRC refuses a TTP request for a liability exceeding £750,000, particularly focusing on directors’ duties when trading whilst insolvent.
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