A Time to Pay arrangement is not just about affordability
When a company owes money to HMRC, many directors assume the solution is simple. Ask for time. Offer monthly payments. Keep trading. Hope HMRC agrees.
But a Time to Pay arrangement is not just a payment plan. It is a credibility exercise. HMRC is not only looking at whether the company wants more time. It is looking at whether the company can realistically afford the proposal, whether future tax will be paid on time, whether the director has been open about the position, and whether the business is viable.
That is where many directors go wrong. They treat Time to Pay as a quick call to HMRC. In reality, a serious Time to Pay proposal needs evidence, explanation and strategy.
HMRC is not a bank
Directors sometimes speak about HMRC as if it is a lender of last resort. It is not. HMRC is not there to provide working capital to a business that cannot fund itself.
If VAT, PAYE, corporation tax or other liabilities are not being paid, HMRC will want to understand why. It will also want to know why the problem will not simply continue.
A Time to Pay arrangement is not credible if the company cannot pay the arrears and stay on top of current and future tax. If a company needs to miss new tax payments in order to pay old tax arrears, the arrangement may already be unrealistic.
The first arrangement is usually the most important
The first Time to Pay request often carries the most credibility. That is the moment where the director can present the problem clearly, explain what has changed, provide proper figures and put forward a realistic proposal.
The mistake is asking for an arrangement that sounds attractive but cannot be maintained. A director may offer a monthly payment because it feels like the number HMRC wants to hear. But if the business cannot afford it, the arrangement will fail.
Once a Time to Pay arrangement fails, the conversation changes. HMRC may be less willing to accept another proposal. The director may have to explain why the previous arrangement failed, what has changed since then, and why a new proposal should be trusted. This is why it is often better to make a realistic proposal from the start than to overpromise and break the arrangement later.
Why Time to Pay arrangements fail
Time to Pay arrangements often fail for predictable reasons. The monthly payment was too high. The company did not allow for future VAT or PAYE. Cashflow was based on hope rather than confirmed income. Directors assumed a customer would pay on time. The business continued to trade at a loss. The company kept paying other creditors while HMRC arrears increased. The director did not deal with the underlying problem.
In other words, the arrangement failed because it was not built on the real position. It was built on what the director hoped would happen. That is not enough.
The question HMRC is really asking
HMRC is not only asking whether the company can pay something each month. The deeper question is whether the business deserves more time.
That may sound harsh, but it is the reality. HMRC will want to understand whether the company is viable, whether the arrears are historic or continuing, whether the director is being transparent, whether current tax will be paid, and whether the proposal is fair when compared with how other creditors are being treated.
If the company has valuable assets, HMRC may ask why those assets are not being used to reduce the debt. If the director is continuing to draw money from the company, HMRC may ask whether that is appropriate. If connected companies are being supported while HMRC remains unpaid, that may raise further questions. If there are director loan account issues, dividends, intercompany transfers or personal expenditure, those issues may make the proposal harder to justify.
The director conduct angle
HMRC arrears are not always just a debt problem. They can become a director conduct problem.
If a company later enters liquidation, the liquidator and the Insolvency Service may look at how HMRC was treated before insolvency. They may ask whether the company continued trading while tax arrears increased, whether certain creditors were preferred, whether company money was paid to directors or connected parties, whether dividends were taken when there were insufficient profits, whether director loan accounts increased, and whether proper records were kept.
This is why directors should not treat HMRC arrears casually. Unpaid tax can become part of a much wider picture. It may feed into misfeasance allegations, wrongful trading concerns, preference claims, director loan account recovery, director disqualification issues or personal exposure under guarantees or other arrangements. The debt may sit with HMRC. But the conduct risk may sit with the director.
What has changed since the last arrangement?
If a Time to Pay arrangement has already failed, the next proposal needs to answer a very important question. What has changed?
It is not enough to say that the company needs another chance. HMRC may want to know why the previous arrangement failed and why this one will be different.
The answer may be that costs have been reduced, a loss-making contract has ended, staff numbers have changed, a debtor has paid, new funding has been introduced, a director has stopped taking drawings, a property has been sold, a creditor has agreed revised terms, or the company has restructured its operations.
The change needs to be real. It should be supported by figures. A second proposal without a clear change in circumstances may simply look like delay.
The domino effect of closure
A strong Time to Pay proposal should also explain the wider impact if the company fails. This does not mean emotional pleading. It means setting out the practical consequences.
If the company closes, jobs may be lost. Suppliers may suffer. Customers may be disrupted. Landlords may lose rent. HMRC may recover less. Other creditors may receive little or nothing. Ongoing tax contributions may stop. Local economic activity may be affected.
Where the business is genuinely viable, that wider context matters. The argument is not that HMRC should ignore the debt. The argument is that a properly structured repayment plan may produce a better outcome than immediate enforcement. That argument is much stronger when it is supported by evidence rather than emotion.
What a serious Time to Pay proposal should include
A serious proposal should explain the full picture. It should set out how the arrears arose, what has changed, what the company can realistically afford, how future tax will be paid, what assets are available, what creditors are being paid, what cost reductions have been made, and why the business remains viable.
It should also include supporting figures. That may include cashflow forecasts, management accounts, aged debtor and creditor reports, bank statements, details of assets, current tax liabilities, future tax deadlines, evidence of funding, and an explanation of any unusual transactions.
If there are director loan accounts, dividends, intercompany balances or connected company payments, those should be understood before the proposal is made. HMRC does not need a glossy story. It needs a credible one.
Why directors should not wait for enforcement
The worst time to negotiate is after HMRC has lost confidence. Once enforcement action has started, the tone changes.
A company may face enforcement agent pressure, a statutory demand, a winding up petition or refusal of further time. At that stage, the director is no longer controlling the timetable. The company is reacting. That makes the proposal harder to present and harder to believe.
Early engagement does not guarantee acceptance, but it usually gives the director more room to explain the position and propose a structured solution. Delay narrows the options. Silence damages trust. Broken promises make the next proposal harder.
The uncomfortable truth
The uncomfortable truth is that some Time to Pay proposals are not really rescue plans. They are delay plans. They are based on hope, not cashflow. They assume that HMRC will wait while the director tries to fix a business that may not be viable.
That is risky. If the company cannot pay current tax, cannot meet the proposed instalments, cannot explain the arrears and cannot show what has changed, a Time to Pay proposal may only postpone the inevitable.
Worse, it may increase the director’s personal risk if the company continues trading and the position deteriorates. A difficult truth faced early is usually better than a crisis faced too late.
My guidance
A Time to Pay arrangement should be treated as a serious restructuring step, not a quick breathing space request.
The proposal needs to be affordable, evidenced and credible. Directors should understand why the arrears arose, whether the business is viable, whether current tax can be paid, what has changed if a previous arrangement failed, and whether company money has been used in a way that may later be questioned.
If HMRC arrears are building up, the director should take advice before making promises that cannot be kept. The strongest Time to Pay proposal is not the one with the biggest monthly payment. It is the one that HMRC can believe.
Concerned About Your Position?
If you are concerned about your personal position, your company, or any formal correspondence you have received, it is important to take advice before responding or taking further steps.
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Disclaimer
This article is provided for general information purposes only and does not constitute legal or financial advice. Each situation will depend on its own facts and specific circumstances, and you should not rely on the above without taking appropriate professional advice.
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