HMRC Time to Pay vs Business Loan: Which to Use

What is HMRC's Time to Pay arrangement?

A Time to Pay (TTP) arrangement is an instalment plan agreed directly with HMRC that allows a business to spread an overdue tax liability over a defined period, typically three to twelve months, without the debt being referred to a debt management agency or triggering a winding-up petition. HMRC does not charge interest at commercial rates; the current late payment interest rate is 7.25% per annum, calculated daily on the outstanding balance.

TTP is available for Corporation Tax, VAT, PAYE, and self-assessment liabilities. To qualify informally online, the total debt must usually be below £100,000 and the business must have filed all outstanding returns. Larger or more complex liabilities require a direct call to the HMRC Business Payment Support Service on 0300 200 3835. HMRC will ask about turnover, current cash position, and why the liability arose before agreeing terms.

When a commercial loan beats a TTP

A commercial business loan clears the HMRC debt immediately, removing the associated risk of enforcement action and giving the business a single, predictable monthly repayment to a private lender rather than ongoing HMRC scrutiny. This matters most when a winding-up petition has already been filed, when HMRC has declined a TTP application, or when the business has multiple tax periods overdue simultaneously.

Lenders such as iwoca, Funding Circle, and Allica Bank can make credit decisions within 24 to 72 hours on loans from £10,000 to £500,000. Interest rates on unsecured term loans currently range from approximately 8% to 35% APR depending on trading history and credit file quality. That cost may still be worth bearing if clearing HMRC debt promptly protects director credit scores, prevents a county court judgement, or allows the business to bid for contracts that require a clean compliance record with Companies House.

Comparing the true cost of each route

The cost comparison between TTP and a commercial loan is not straightforward because HMRC's late payment interest compounds daily while commercial loan APRs are typically quoted as annual flat or reducing-balance figures. A business owing £50,000 in VAT and spreading it over nine months via TTP would pay roughly £2,700 in HMRC interest at 7.25%. A nine-month unsecured loan at 18% APR on the same sum would cost approximately £3,400 in interest and fees, making TTP cheaper in pure interest terms.

However, this ignores indirect costs: HMRC may conduct a compliance review during a TTP period, staff time is consumed managing the arrangement, and any missed TTP instalment causes the entire arrangement to collapse immediately, leaving the business in a worse position than before. A loan replaces ongoing HMRC contact with a standard direct debit, which many finance directors find easier to manage within a monthly cash-flow model.

Sector situations where borrowing makes more sense

Certain trading sectors and financial circumstances consistently favour a loan over TTP, particularly where HMRC debt has accumulated because of structural cash-flow timing rather than a one-off event. Construction businesses waiting on retention payments, recruitment agencies carrying significant PAYE liabilities ahead of a large payroll run, and hospitality operators facing a quarterly VAT bill after a slow season are common examples where a short-term bridging loan or revenue-based facility resolves the problem cleanly.

In these cases the business can match the loan repayment schedule to the incoming cash event: a retention release, a placement fee invoice, or the next peak trading period. Lenders familiar with sector cash-flow cycles, including Capify for thin-file borrowers and OakNorth for larger structured deals above £500,000, will often take a more nuanced view of the underlying cause of the tax liability than HMRC's own payment support team is mandated to consider.

What lenders look for when a loan is for tax clearance

Lenders treat tax clearance loans as standard working capital applications but will probe the reason the liability arose, since repeated or unexplained HMRC debt can indicate wider financial stress. Most mainstream fintech lenders and challenger banks will want to see at least twelve months of filed accounts, up-to-date VAT returns, and three to six months of business bank statements showing regular revenue. A single overdue tax quarter is generally not a barrier to approval.

Where HMRC has already issued a winding-up petition, the pool of willing lenders narrows considerably and a specialist broker who works with the alternative and asset-backed lending panel becomes essential. In those cases, security such as a charge over commercial property or debtors can unlock funding that an unsecured application would not. Directors should be prepared to provide a personal guarantee on most unsecured facilities below £250,000.

Combining both routes: a hybrid approach

A hybrid approach uses a commercial loan to clear the most urgent or highest-penalty portion of the HMRC liability while negotiating a TTP for the remainder, reducing total interest cost and maintaining a manageable relationship with HMRC. This is most useful when the total liability spans multiple tax types, for instance both a VAT debt and a PAYE shortfall, where HMRC may be willing to grant TTP on one element while the other is cleared in full.

Accountants and specialist tax advisers can negotiate with HMRC on behalf of the business while a broker simultaneously sources commercial finance, compressing the timeline. Businesses should confirm with their accountant whether clearing part of the debt changes the penalty position, since some surcharges are calculated as a percentage of the outstanding balance at specific dates and partial payment before those dates can reduce the final penalty materially.

Steps to take if HMRC is pressing for payment now

Acting promptly is the single most important factor when HMRC begins formal enforcement correspondence, because the progression from a simple overdue notice to a winding-up petition can take as little as eight weeks once a statutory demand has been issued. A business that contacts HMRC proactively and proposes a credible repayment plan is consistently treated more favourably than one that waits for a demand.

At the same time, a parallel conversation with a business finance broker costs nothing and takes less than an hour. A broker with access to multiple lenders can give an indicative term and rate within the same day, allowing the finance director or owner to make an informed comparison before committing to either route. Brokers regulated by the FCA and registered with the National Association of Commercial Finance Brokers (NACFB) are the safest starting point for impartial advice.

Step-by-step

1. Confirm the exact overdue amounts across all tax types: Corporation Tax, VAT, PAYE, and self-assessment, using your HMRC online business tax account.
2. Check whether all tax returns are filed and up to date, as HMRC will not agree a TTP if outstanding returns remain unfiled.
3. Assess whether HMRC has issued a statutory demand or winding-up petition; if so, take legal advice immediately alongside finance options.
4. Contact HMRC Business Payment Support Service (0300 200 3835) to test TTP eligibility and document the terms offered, including the monthly instalment and duration.
5. Approach an FCA-authorised business finance broker in parallel to obtain indicative loan terms covering the same liability amount and repayment period.
6. Compare the total repayment cost, the operational burden, and the risk profile of each route with your accountant before making a final decision.
7. If borrowing, ensure the loan proceeds are paid directly to clear the HMRC account and obtain written confirmation from HMRC that the debt is settled.

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Frequently asked questions

By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 2026-05-20.