Can I pay my tax bill in instalments?

Time to Pay is HMRC's instalment arrangement, available to individuals, sole traders, partnerships and companies across Self Assessment income tax, VAT, PAYE and National Insurance, and corporation tax. It is far easier to obtain before enforcement starts than after, so the single most useful thing you can do is contact HMRC early.

Setting one up

• Online — for Self Assessment debts of £30,000 or less that are less than 60 days overdue, where you have no other arrangement and no outstanding returns. Log in through your HMRC account, choose "set up a payment plan", pick an affordable monthly figure and confirm a direct debit. Plans commonly run to 12 months, sometimes 24 depending on your history.
• By phone — for debts above £30,000, debts more than 60 days overdue, or VAT, PAYE and corporation tax arrears. The Business Payment Support Service is on 0300 200 3835; Self Assessment is 0300 200 3822.

Prepare before you call. HMRC will ask for your reference numbers and amounts owed, your income and essential outgoings, business turnover and cash flow, any assets that could clear the debt, why you cannot pay and what you can afford. Officers have real discretion, and a call with the figures to hand produces a better arrangement than one without. HMRC generally looks for repayment within about 12 months, though longer terms are agreed in harder cases.

What it does and does not do

Time to Pay stops enforcement and prevents further late payment penalties while you keep to it — which is why setting one up before a penalty trigger date is worth real effort. It does not stop interest, which continues to accrue on the outstanding balance throughout. And it does not appear on your credit file: HMRC does not report arrangements to the credit reference agencies, though a County Court Judgment obtained by HMRC certainly would.

Defaulting is expensive. Miss a payment, or file a later return late, and HMRC can withdraw the arrangement immediately: the whole balance falls due, enforcement can resume without notice, and a future application will be viewed sceptically. HMRC's tools include distraint against goods, a County Court judgment leading to charging orders or third-party debt orders, a winding-up petition against a company, and a bankruptcy petition for individual debts of £5,000 or more.

If you think you will miss a payment, ring first. Short-term modifications are routinely agreed for people who explain the problem in advance; silence is what triggers enforcement. Where the debt has been passed to a collection agency, you still negotiate with HMRC, not the agency.