HMRC Time to Pay vs Business Loan: Which to Choose

What HMRC Time to Pay Actually Offers

A Time to Pay arrangement is an instalment plan negotiated directly with HMRC, typically covering Corporation Tax, VAT, PAYE, or Self Assessment liabilities that a business cannot pay in full on the due date. HMRC generally expects full repayment within six to twelve months, though some agreements extend to twenty-four months for larger liabilities with clear evidence of future cashflow.

Interest accrues at the HMRC late-payment rate, which as of June 2026 stands at 7.25 percent per annum (base rate plus 2.75 percent). There is no arrangement fee. Crucially, HMRC does not report a TTP to credit reference agencies, so it leaves no formal mark on a company's credit file provided payments are made on time. Missing a TTP payment, however, can trigger accelerated enforcement action and damage the relationship with HMRC significantly.

When a Business Loan or Tax Finance Beats TTP

Commercial lending can outperform TTP in several scenarios: when HMRC declines a TTP request, when the business needs longer repayment terms than HMRC will grant, or when clearing the debt in full avoids a winding-up petition already filed.

Specialist tax finance providers, including several that operate in the UK SMB market, offer facilities specifically designed to repay HMRC liabilities. These facilities typically carry interest rates of between eight and eighteen percent per annum depending on credit profile and security. For a business that can borrow at ten percent and use the freed-up cashflow to generate a higher return, or one that simply needs breathing room beyond HMRC's preferred twelve months, a term loan or revolving facility may represent a better overall outcome. Clearing the HMRC debt also removes the risk of a statutory demand arriving at Companies House.

Corporation Tax, VAT and PAYE: Different Risk Profiles

Not all HMRC liabilities carry the same enforcement urgency, and that shapes whether TTP or external finance is more appropriate.

VAT debts tend to attract faster enforcement than Corporation Tax, because VAT is money collected on HMRC's behalf from customers. HMRC views persistent VAT arrears as a compliance failure rather than a cashflow issue. PAYE arrears carry similar weight and can result in personal liability for directors in certain circumstances under IR35 and related provisions. Corporation Tax, while serious, is more commonly the subject of extended TTP arrangements because it arises from trading profits rather than collected funds. Businesses with PAYE or VAT arrears that HMRC is unlikely to spread over more than six months may find that a short-term bridging loan or VAT finance facility resolves the position with less enforcement risk than a drawn-out TTP negotiation.

Eligibility and the HMRC TTP Application Process

HMRC grants Time to Pay arrangements on a case-by-case basis, and there is no automatic right to one. The key factors HMRC assesses are whether the business is broadly compliant with its filing obligations, whether it has a credible cashflow forecast showing it can meet the proposed instalments, and whether it has genuinely explored other means of payment first.

The application is made by telephone to HMRC's Business Payment Support Service or, for debts already in collection, through the Debt Management team. Businesses should prepare: the amount owed and the tax type, a realistic monthly repayment proposal, a brief explanation of why the liability arose, and evidence of current trading. HMRC will ask whether the directors have considered external finance. Being able to demonstrate that external finance is unavailable or prohibitively expensive strengthens the case for a longer arrangement. If HMRC refuses or offers insufficient terms, that refusal itself can support a lender application as evidence of need.

Cost Comparison: TTP Interest vs Commercial Rates

The headline cost of a TTP arrangement looks attractive because the HMRC late-payment rate of 7.25 percent is lower than many unsecured commercial loans. However, the full cost comparison requires considering hidden factors on both sides.

TTP locks the business into fixed monthly payments to a creditor with statutory enforcement powers. Missing even one instalment can cause HMRC to withdraw the arrangement and pursue the full balance immediately, including penalties. A commercial lender, by contrast, may be willing to discuss a payment holiday or restructure. Additionally, some businesses find that maintaining a TTP drains management time and creates uncertainty for trade creditors and banking relationships. A clean repayment via a term loan at, say, twelve percent can cost more in pure interest terms but deliver measurable operational benefits. The table below illustrates a simplified cost comparison for a fifty-thousand-pound liability over twelve months.

Winding-Up Petitions and Emergency Tax Finance

If HMRC has already issued a winding-up petition, the window for a negotiated TTP is effectively closed and emergency external finance becomes the most viable rescue route.

A winding-up petition filed at Companies House is publicly visible and can cause banks to freeze accounts within days. At that stage, a bridging loan or specialist tax-debt finance facility secured against property or business assets may be the only mechanism to satisfy HMRC, have the petition withdrawn, and restore normal trading. Lenders in this space are accustomed to working quickly, sometimes completing within five to ten working days, but they will require evidence that the tax liability is the primary debt and that the business is otherwise viable. Directors should seek legal advice immediately on receipt of any winding-up petition and contact a specialist finance broker in parallel rather than sequentially.

Practical Steps for Directors Facing a Tax Liability

Directors of UK limited companies and LLPs should follow a structured approach when a significant HMRC liability arises, rather than defaulting automatically to TTP or to borrowing.

The first step is to establish the exact amount owed across all tax types and check that all returns are filed, because HMRC will not discuss TTP for a business with outstanding returns. Next, prepare a twelve-month cashflow forecast that is defensible. Then approach HMRC to understand what repayment schedule they will accept. If the HMRC offer is insufficient, approach a specialist broker to obtain indicative commercial terms, compare the total cost of each route including any enforcement risk, and make the decision on that basis rather than on headline interest rates alone. Directors should document the decision-making process to demonstrate they have acted in the company's best interests, which is relevant to their duties under the Companies Act 2006.

Step-by-step

1. File all outstanding tax returns so HMRC will engage on a TTP request.
2. Calculate the exact liability across all tax heads: Corporation Tax, VAT, PAYE, and any penalties.
3. Prepare a realistic twelve-month cashflow forecast showing monthly repayment capacity.
4. Contact HMRC Business Payment Support Service and record the outcome of the call in writing.
5. If HMRC declines or offers insufficient terms, approach a specialist SMB finance broker for indicative commercial terms.
6. Compare total cost of each route including enforcement risk, management time, and impact on banking relationships.
7. Document the board's decision with brief written minutes referencing the directors' duty to act in the company's best interests under the Companies Act 2006.

Example

Frequently asked questions

By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 2026-06-13.