VAT Payment Plan
Yes, in many cases you can set up a VAT payment plan with HMRC if your company cannot pay its VAT bill in full on time.
HMRC says businesses that cannot pay a tax bill in full may be able to arrange to pay in instalments, but any plan must be affordable and realistic.
For limited company directors, a VAT payment plan can provide valuable breathing space, but it is not an automatic right and it may not solve a wider cash-flow problem.
💡 Quick Answer
If your company cannot pay its VAT bill in full, HMRC may agree a payment plan known as a Time to Pay arrangement.
The arrangement is based on what the business can realistically afford and normally requires the company to keep future VAT and other tax liabilities up to date.
Contact HMRC as early as possible if you know the VAT bill cannot be paid on time.
What is a VAT payment plan?
A VAT payment plan is an arrangement with HMRC to pay overdue VAT in instalments rather than in one lump sum.
HMRC generally refers to this as a Time to Pay arrangement.
In simple terms, it is designed for businesses that have fallen behind with VAT but may still be able to repay what they owe over time.
It is normally most appropriate where the company has a temporary cash-flow problem rather than a deeper inability to meet its debts.
For a wider explanation, see our HMRC Time to Pay arrangement guide.
Does HMRC offer VAT payment plans?
Yes.
HMRC confirms that businesses which cannot pay tax on time may be able to set up a payment plan online or contact HMRC to discuss one directly.
HMRC’s VAT late-payment guidance also confirms that an agreed Time to Pay arrangement can reduce, or in some circumstances prevent, late-payment penalties. Interest can still continue on the outstanding VAT balance.
Approval depends on the circumstances of the business.
Can every company get a VAT payment plan?
Some businesses may be able to set up a payment plan online.
Where this is not possible, you can contact HMRC and discuss the company’s circumstances.
Before approaching HMRC, you should know:
- how much VAT is owed;
- what the company can pay immediately;
- what monthly repayment is affordable;
- the company’s current income and expenditure; and
- whether future VAT and other tax liabilities can still be paid.
HMRC may ask for information about the company’s finances before agreeing an arrangement.
For the full process, see our guide to how to apply for HMRC Time to Pay.
How Do You Set Up a VAT Payment Plan With HMRC?
Some businesses may be able to set up a payment plan online.
Where this is not possible, you can contact HMRC and discuss the company’s circumstances.
Before approaching HMRC, you should know:
- how much VAT is owed;
- what the company can pay immediately;
- what monthly repayment is affordable;
- the company’s current income and expenditure; and
- whether future VAT and other tax liabilities can still be paid.
HMRC may ask for information about the company’s finances before agreeing an arrangement.
For the full process, see our guide to how to apply for HMRC Time to Pay.
What Information Should Directors Prepare Before Speaking to HMRC?
Before approaching HMRC, it helps to have a clear picture of the company’s financial position.
A director should usually be ready with:
- the amount of VAT owed;
- the date payment fell due;
- current cash at bank;
- an explanation of why the arrears arose;
- a realistic monthly repayment figure;
- information about other tax debts or creditor pressure; and
- details of any available assets or funding options.
Having this information available does not guarantee approval, but it makes it easier to demonstrate that the proposal is realistic.
Will HMRC Charge Interest If a VAT Payment Plan Is Agreed?
Yes.
HMRC charges late-payment interest on overdue VAT from the first day the payment is late until it is paid in full.
Where VAT is being repaid in instalments through a Time to Pay arrangement, interest can continue to accrue on the outstanding balance.
A VAT payment plan can therefore spread the debt, but it does not usually freeze the cost of the arrears.
Can a VAT Payment Plan Reduce Penalties?
Potentially.
For VAT accounting periods beginning on or after 1 January 2023, the late-payment penalty system depends partly on how long the VAT remains unpaid.
A Time to Pay proposal can be made after the VAT becomes overdue, and HMRC confirms that agreeing a payment plan may result in lower, or in some circumstances no, late-payment penalties.
Late-payment interest can still continue until the VAT is fully paid.
That is another reason to deal with VAT arrears early rather than allowing the debt to continue building.
What Happens If HMRC Refuses a VAT Payment Plan?
f HMRC will not agree a payment plan, it can ask for the VAT debt to be paid in full.
That does not necessarily mean immediate formal action, but it should be taken seriously.
If the company cannot pay VAT, cannot agree terms with HMRC and is also struggling with PAYE, suppliers, loans or other creditors, the issue may be more serious than one missed tax bill.
Directors should consider whether the company is experiencing a short-term cash-flow problem or whether it can no longer meet its debts as they fall due.
What Happens If You Miss a VAT Payment Plan Instalment?
If your company misses an agreed instalment, contact HMRC quickly.
HMRC can review or ultimately cancel a Time to Pay arrangement where its conditions are not followed.
A failed arrangement may allow normal debt-recovery action to restart.
For the full explanation, see our guide to missing HMRC Time to Pay payments.
When a VAT Payment Plan May Not Be Enough
A VAT instalment plan can be useful where the underlying business remains viable and simply needs additional time.
It may be less appropriate where:
- VAT arrears keep recurring;
- the company is behind with other taxes;
- other creditors are already pursuing payment;
- HMRC can only be paid by falling behind elsewhere; or
- the company is likely to miss future VAT bills as well.
HMRC’s Time to Pay approach is based on affordability and on the customer’s ability to meet both the agreed instalments and other tax liabilities falling due.
If that is no longer realistic, a broader restructuring or insolvency review may be needed.
What Should a Director Do If the Company Cannot Pay VAT?
The most important thing is to act early.
A sensible order is:
- Confirm exactly how much VAT is due.
- Make sure the VAT Return is submitted on time.
- Review what the company can genuinely afford.
- Contact HMRC promptly about payment options.
- Take professional advice if VAT arrears form part of wider financial difficulties.
If the immediate issue is simply that the company cannot pay its VAT bill, see our dedicated guide to what to do if you cannot pay VAT on time.
Final Answer
Yes, you can often set up a VAT payment plan with HMRC if your company cannot pay its VAT bill in full.
HMRC may allow overdue VAT to be repaid through a Time to Pay arrangement, but it will assess whether the proposal is affordable and realistic.
Interest normally continues on the unpaid balance, and approval is not guaranteed.
For directors, the key question is not simply whether HMRC will accept instalments, but whether the company can afford the plan and continue meeting its future tax liabilities.
If VAT arrears are part of wider financial pressure, Business Helpline provides free, confidential initial advice to limited company directors.
Call our free 24-hour helpline on 0800 088 2142 or request a confidential call back.
VAT Payment Plan FAQs
Can I set up a VAT payment plan before the bill is overdue?
If you know the company will not be able to pay its tax bill on time, HMRC recommends contacting it as soon as possible. In some circumstances, Time to Pay can be discussed before the payment deadline.
Is a VAT payment plan the same as Time to Pay?
Usually, yes. HMRC refers to an arrangement to repay overdue VAT in instalments as a Time to Pay arrangement.
Will HMRC stop charging interest if I pay VAT by instalments?
No. Late-payment interest can continue to apply to the outstanding VAT until the balance is fully paid.
Can HMRC refuse a VAT payment plan?
Yes. HMRC will consider affordability and the circumstances of the business. If an arrangement cannot be agreed, HMRC can require the outstanding VAT to be paid in full.
Can a VAT Payment Plan Reduce Late-Payment Penalties?
Potentially. HMRC confirms that agreeing a Time to Pay arrangement can result in lower, or in some circumstances no, late-payment penalties, depending on when the proposal is made and agreed. Interest may still continue.
