HMRC Time To Pay Arrangement Guide 2025: How to Negotiate a Repayment Plan for Unpaid Tax

In the complex world of UK debt recovery and insolvency law, Time-to-Pay proposals (TTPs) have become an essential tool for financially distressed businesses and individuals. A TTP allows a debtor to agree staged repayment terms with creditors, typically over 6 to 12 months, without entering into formal insolvency procedures such as a Company Voluntary Arrangement (CVA) or bankruptcy. This can halt the progression of debt recovery measures such as the service of a winding-up petition preserving a debtor’s ability to trade.           

When arrears arise with HMRC, whether in relation to PAYE, VAT, or Corporation Tax, time is of the essence. The Insolvency Act 1986 sets out the framework in which creditors can enforce debts, and once statutory enforcement steps have commenced, the debtor’s bargaining position diminishes sharply. Proposing a TTP early can keep a business out of formal insolvency, protect jobs, and ensure compliance with directors’ duties.

This comprehensive guide explains when TTPs are appropriate, how they operate in practice, the legal principles involved, and how creditors and courts typically respond. It also sets out practical strategies employed by LEXLAW’s experienced tax dispute solicitors for preparing and negotiating a proposal that has the best chance of success.

When Should You Ask HMRC for a Time-to-Pay Arrangement?

The typical TTP scenario involves a debtor under immediate financial strain, often caused by temporary cash flow issues rather than fundamental insolvency. This may result from seasonal trading fluctuations, loss of a major customer, delayed debtor payments, or unexpected tax assessments.

HMRC is by far the most common creditor in TTP arrangements. Their Debt Management & Banking (DMB) teams have internal guidelines that allow for negotiated repayment schedules where the taxpayer can demonstrate both short-term financial difficulty and medium-term repayment capability.  

Without intervention, unpaid debts can quickly trigger statutory enforcement: a statutory demand, the filing of a winding-up petition, or bankruptcy proceedings. Once a winding-up petition is advertised, the reputational and practical consequences are severe, bank accounts are often frozen, suppliers may demand advance payment, and customers may withdraw contracts.

A TTP can interrupt this process, giving breathing space for the debtor to reorganise finances. But creditors will only agree if the proposal is credible, transparent, and clearly better than the likely outcome of enforcement. This is precisely why engaging expert solicitors who are well-versed in these high-stakes negotiations is crucial.

What Laws and Legal Duties Apply to Time-to-Pay Proposals in the UK?

While TTPs are not expressly legislated, they operate within the legal framework of contract law, insolvency law, and, in HMRC cases, departmental policy. The Insolvency Act 1986 underpins the rights of creditors to enforce payment, meaning any TTP is by definition a concession. Failing to seek a TTP early can risk wrongful trading allegations if creditors’ positions worsen.

In court contexts, such as when seeking to adjourn a winding-up petition hearing, the judge will assess whether a TTP is realistic and in creditors’ interests. LEXLAW has managed to secure favourable Time-to-Pay Proposals for our clients with a tested recipe for success.

Why Do Time-to-Pay Proposals Fail and How Do Courts View Them?

Debtors seeking TTPs often stumble for avoidable reasons:

• Insufficient disclosure: Creditors need to see bank statements, management accounts, and cash flow forecasts.
• Over-optimistic terms: Unrealistically low monthly instalments or repayment periods exceeding 24 months may be rejected.
• Poor timing: Waiting until the day of the petition hearing to present a proposal reduces credibility.

Judicial attitudes have evolved to recognise the value of TTPs in appropriate cases, especially where an adjournment will not unduly prejudice creditors. However, courts remain wary of debtors using proposals as a tactic to delay inevitable insolvency. When faced with the choice of pursuing this route, it is always a good decision to consult experts.

How Do You Apply for a Time-to-Pay Proposal with HMRC or Other Creditors?

Obtaining a TTP is not as simple as asking for more time. It is a structured process that requires preparation, evidence, and strategic engagement.

The starting point is financial assessment. A debtor must compile accurate, up-to-date financial documents, profit and loss statements, balance sheets, aged creditor reports, and detailed cash flow forecasts. This information allows both debtor and creditor to assess whether repayment over time is genuinely feasible. For companies, board minutes approving the proposal should also be retained to evidence proper corporate governance.

The second step is initial contact with the creditor. For HMRC debts, this involves contacting the relevant Debt Management office, preferably before payment deadlines expire. Private creditors may require formal correspondence from a solicitor setting out the repayment offer. Early engagement signals seriousness and avoids the impression of reactive, last-minute desperation.

The third step is proposal drafting. This must include the total debt, proposed repayment instalments, the repayment period, the source of funds, and supporting evidence. Creditors are more receptive to proposals that include contingency plans, for example, how the debtor will manage cash flow if trading dips temporarily.

The fourth step is negotiation. This is where our expertise comes in. Creditors may counter-offer with shorter repayment periods, higher instalments, or additional conditions such as the provision of personal guarantees. The debtor must be prepared to negotiate without committing to terms they cannot sustain.

The fifth and final step is formal agreement and compliance. Once a proposal is accepted, the debtor must comply strictly with the payment schedule. Missing even a single instalment can void the agreement, reinstating enforcement proceedings. Maintaining communication with the creditor throughout the repayment term is critical, particularly if circumstances change.

What Are the Risks and Benefits of a Time-to-Pay Agreement for Debtors and Creditors?

For debtors, a TTP is often a last opportunity to avoid formal insolvency and the associated consequences, director disqualification, personal guarantees being called in, and reputational damage. For creditors, a well-structured TTP may represent the most efficient way to recover sums owed, avoiding litigation costs and delays.           

Our work on advising clients on winding-up petitions consistently shows that proposals supported by credible financial evidence, prepared with professional input, and delivered early in the enforcement timeline have a significantly higher acceptance rate.

Practical Guidance on Obtaining a Time-to-Pay Proposal

The process of securing a TTP involves both strategic planning and precise execution.

First, debtors must assess financial viability, this means preparing accurate management accounts, aged creditor/debtor reports, and realistic cash flow projections. If trading losses are ongoing, the proposal must address how these will be stemmed.

Second, the proposal should be presented professionally. Creditors, especially HMRC, respond better to proposals prepared by solicitors or accountants, as this indicates commitment and seriousness.

Third, negotiate terms transparently. Disclose all liabilities, hidden debts that later emerge will destroy creditor trust and may lead to immediate withdrawal of the agreement.

Fourth, act quickly. The earlier a TTP is proposed, the more likely it is to succeed. If a winding-up petition is already filed, the debtor must simultaneously apply for an adjournment to give the creditor time to consider the proposal.

Finally, monitor compliance closely. Missing even one instalment can void the agreement, triggering renewed enforcement.

Obtaining HMRC Time-to-Pay Proposals

Securing a Time-to-Pay Proposal with HMRC or other creditors requires prompt, strategic action. A well-prepared evidential package, comprising management accounts, bank statements, aged debtor/creditor schedules, and realistic cash flow forecasts, is essential to demonstrate both the necessity and viability of the arrangement.

Our experienced lawyers will conduct a meticulous review of financial documentation, presenting proposals in a professional and structured format, and negotiating realistic terms so that the business can sustain. Where a petition has already been issued, simultaneous applications for adjournment and TTP negotiation may be vital to preserving the company’s trading position. As our track record shows, timely specialist advice can transform a potentially terminal debt situation into a manageable repayment plan that satisfies both debtor and creditor objectives.