You've checked the bank account twice, delayed a supplier payment, and still can't see enough cash to clear the Corporation Tax bill. The deadline is close, and hoping next month's sales arrive on time isn't a payment strategy.
For most UK companies, Corporation Tax is due in one lump sum 9 months and 1 day after the end of the accounting period, as HMRC's payment guidance confirms. If the money isn't available, an HMRC payment plan can create breathing space. It can also become an expensive habit if you use it to hide weak margins, poor forecasting or an inefficient tax structure.
What a Corporation Tax Payment Plan Actually Is
A director usually discovers the problem in a very ordinary way. The accounts are finalised, the Corporation Tax liability is clear, and the company's payment deadline is two weeks away. The business has money coming in, but not enough sitting in the bank today. Payroll, VAT, suppliers and rent have first claim on the cash.
An HMRC Time to Pay arrangement lets the company propose a schedule for clearing the outstanding Corporation Tax rather than paying everything at once. HMRC doesn't approve the arrangement automatically. The company must explain its financial position, show that the proposal is realistic and agree to keep meeting its future tax obligations.
Practical rule: Contact HMRC before the deadline wherever possible. Silence removes options, while an early, credible proposal shows that the director is managing the problem.
This route is different from the statutory quarterly instalment regime. Large companies with annual taxable profits over £1.5 million can fall within the Corporation Tax instalment rules, subject to the group threshold adjustments described in HMRC's guidance for very large companies. A company with 3 related 51% group companies, for example, has a threshold of £5 million, calculated as £20 million divided by 4. That is planned tax funding built into the accounting cycle, not a rescue arrangement after a bill becomes due.
For a 12-month accounting period, companies within the ordinary instalment rules make 4 equal payments, with the first generally due 6 months and 13 days after the start of the period, followed by the remaining payments at the intervals set out by HMRC. Very large companies have an accelerated timetable, with payments due in months 3, 6, 9 and 12 for accounting periods beginning on or after 1 April 2019, according to HMRC's internal Corporation Tax manual.
That leaves three practical choices:
- Pay in full: Cheapest and cleanest if the cash is available.
- Request Time to Pay: Sensible where the company has a temporary funding gap and a credible route to repayment.
- Do nothing: The worst option. The liability remains, interest accrues and HMRC's collection response can become more serious.
A payment plan is therefore neither a tax reduction nor a free extension. It's a negotiated cash-flow tool with a price attached. Directors who need to understand the separate instalment regime should also review quarterly instalment payments before assuming that Time to Pay is the correct route.
Who Qualifies and When HMRC Will Say No
HMRC's decision turns on affordability and credibility. The question isn't whether the company asks politely. HMRC needs to see that the company can repay the debt and that the director is taking compliance seriously.
Start with the basic eligibility test
Work through these points before contacting HMRC:
- The Corporation Tax return should be filed. HMRC needs a confirmed liability, not an unfinished calculation.
- Other returns should be up to date. Late filing makes the request harder to support, so check the company's Corporation Tax filing deadline and related obligations.
- The cash shortfall must be explainable. A temporary gap caused by delayed customer receipts is easier to present than years of unexplained losses.
- The repayment offer must be realistic. Don't offer an amount that only works if every customer pays early and no unexpected bill arrives.
- The company must share financial information. HMRC may ask about income, spending, assets, liabilities and available cash.
A small company usually reaches this point because it can't fund the standard lump-sum payment due 9 months and 1 day after the accounting period ends. A very large company is different. It may already be required to pay through instalments in months 3, 6, 9 and 12, so the issue is often a missed or underfunded instalment rather than a first request to spread an annual bill.
Know what weakens the application
HMRC is likely to challenge an application where the company has repeatedly used payment plans without correcting its cash management. The same applies where the director can't explain why the proposed instalment is affordable, or where the business continues paying discretionary costs while asking HMRC to wait.
A company that's actively trading but has persistent insolvency indicators needs more than a repayment timetable. If the business can't meet ordinary debts as they fall due, the director should obtain insolvency advice rather than treating Time to Pay as a substitute for a solvency review.
HMRC may reject a proposal that looks like delay for its own sake. A director who has filed accurately, contacted HMRC promptly and prepared a repayment plan supported by cash-flow figures has a much stronger position than someone who waits for enforcement correspondence.
Preparing the Information HMRC Will Ask For
The preparation work determines how useful the HMRC conversation will be. A director who calls without figures may spend the conversation trying to reconstruct the business position, then offer an instalment that collapses later. Gather the information first.
Build the working file
Have these items in front of you:
- Unique Taxpayer Reference: Your company's UTR and HMRC correspondence.
- Corporation Tax details: The accounting period, filed liability, amount already paid and balance outstanding.
- Bank information: Current balances, overdraft availability and regular payment commitments.
- Income schedule: Expected customer receipts, contract dates and any overdue invoices.
- Expense schedule: Payroll, rent, suppliers, finance costs, VAT and other unavoidable outgoings.
- Other debts: Existing loans, arrears, creditor arrangements and upcoming liabilities.
- Cash-flow forecast: A rolling forecast that shows how the proposed HMRC payment fits alongside normal trading costs.
The Government Gateway number guide can help if access problems are slowing you down. Don't leave account access until the day of the call. A missing login can turn a manageable conversation into a delay.
Turn the numbers into a proposal
HMRC needs a repayment plan that reflects what the business can afford. Start with expected cash receipts, deduct essential operating costs, and identify the surplus available for the tax debt. Then test the proposal against weaker trading, late customer payments and routine surprises.
Don't present a forecast that depends on optimistic assumptions. If the business has a large invoice due, show when you expect payment and what happens if it arrives late. If the forecast shows no surplus after essential costs, a monthly payment proposal may not be viable. That's a signal to review pricing, staffing, creditor terms and funding, not only to request a longer arrangement.
Keep evidence available. Bank statements, aged debtor reports, management accounts and a clear list of liabilities give substance to the discussion. Your objective isn't to overwhelm HMRC with paperwork. It's to demonstrate that the proposal comes from an organised cash-flow review rather than guesswork.
How to Apply for a Corporation Tax Payment Plan
There are two practical routes, and the right one depends on the size of the debt and the complexity of the company's position. GOV.UK directs companies that can't pay on time towards the pay in instalments process, where the director provides income and spending information and agrees terms with HMRC.
Use the online route where it fits
The online service is appropriate when the company meets HMRC's criteria and the arrangement is straightforward. You'll need the company's tax details, the outstanding amount and a proposed payment schedule. The system is useful for a simple, clearly defined liability, but it won't replace judgement where the company has several debts, unusual cash movements or a complicated group structure.
Before submitting anything, reconcile the balance against the Corporation Tax computation and HMRC account. A mismatch can create avoidable delay. Decide the payment date as well as the amount, because the date must work with payroll, supplier runs and expected receipts.
Call the Time to Pay team when the case needs context
A phone conversation is usually more suitable where the debt is substantial, the company has a complex financial position or the online service doesn't accept the proposed arrangement. HMRC will ask how much the company owes, why it can't pay, what cash is available, what income is expected and how the proposed instalments were calculated.
Explain the facts plainly. Don't describe a permanent profitability problem as a temporary timing issue. If the company has a credible turnaround plan, set out the actions already taken, such as revised pricing, reduced overheads or improved debtor collection. If the proposal is refused, ask what information or repayment level would make it acceptable rather than repeating the same offer.
The conversation should end with clarity about the agreed amount, payment dates, interest, ongoing filing duties and consequences of default. Keep written records of the agreement and any reference provided.
The following video can help directors understand the practical shape of the process before they contact HMRC.
An agreed plan is only useful if the company can maintain it. Build the payments into the cash forecast immediately, reserve funds as receipts arrive and avoid treating the first successful instalment as proof that the wider problem has disappeared.
What the Terms and Interest Will Actually Cost You
The cost of a Corporation Tax payment plan is the interest, the administrative discipline and the loss of flexibility. HMRC doesn't waive the cost because it agrees to spread the debt. HMRC's interest guidance confirms that interest continues during an agreed arrangement.
Smaller tax debts are often structured over a relatively short period, commonly several months rather than an open-ended timetable. The exact term depends on affordability, the debt, the company's history and HMRC's assessment. A shorter plan normally means larger payments but less interest. A longer plan reduces the immediate monthly pressure but keeps the balance outstanding for longer.
Calculate the monthly burden properly
Start with the unpaid tax and divide it by the number of planned instalments. Then allow for interest and check whether the payment date coincides with the company's busiest cash demands. Don't use the tax-only division as the amount you reserve, because the final balance will include interest.
For example, suppose the company owes £12,000 and agrees a 6-month plan. Ignoring interest for the initial cash-flow illustration, the tax element would be £2,000 per month. That isn't the final cost, because interest accrues while the balance remains unpaid.
From 6 April 2025, standard late Corporation Tax payments attract interest at the Bank of England base rate plus 4%, while underpaid quarterly instalments for very large companies attract base rate plus 2.5%, according to published guidance on the rate changes. With the cited Bank of England base rate of 4.5%, those rates equated to 8.5% and 7.0% respectively at the time covered by that source.
The illustration is deliberately simple. Interest is calculated on the outstanding balance as it reduces, so it won't equal the headline rate applied to the original debt for the entire term. The director should ask HMRC for the repayment schedule and total expected amount, then compare that figure with the cost of paying through an overdraft, invoice finance or another funding source.
The right comparison isn't “Can we afford the first instalment?” It's “What will this arrangement cost, and can the company fund every payment without creating another arrear?”
A payment plan can be cheaper than an emergency funding decision, but not always. Review late tax payment penalties alongside the interest terms, then judge the plan as a financing decision rather than a favour from HMRC.
Alternatives Worth Considering Before You Sign
Time to Pay is useful, but it shouldn't be the only option on the table. The right funding choice depends on how quickly cash will arrive, the cost of borrowing and whether the company's directors are prepared to take personal risk.
| Option | Typical Cost | Speed | Director Exposure |
|---|---|---|---|
| HMRC payment plan | HMRC interest continues during the arrangement | Can be arranged through the online service or by contacting HMRC | Usually company-level, but default and poor decisions can create wider director concerns |
| Business overdraft | Commercial interest and possible fees set by the lender | Potentially quick if an existing facility is available | Personal guarantees may apply |
| Invoice finance | Finance charges linked to funded invoices and provider terms | Useful where approved invoices are awaiting payment | Personal guarantees and customer concentration risks may apply |
| Director's loan | Depends on the agreed terms and the director's own funding cost | Often immediate if cash is available | Direct personal exposure, with company-law and tax treatment to manage |
| Creditor negotiation | May involve revised terms or commercial concessions | Depends on each creditor | Personal exposure varies, especially where guarantees exist |
| Budget reduction | Operational cost, lost capacity or slower growth | Immediate for controllable spending, slower for contractual costs | Usually limited personal exposure, but commercial consequences can be significant |
| Do nothing | Continuing interest and possible collection action | No setup time, but no resolution | Can increase pressure on the company and the director's responsibilities |
Commercial finance can beat a payment plan where a customer receipt is highly reliable and the borrowing cost is lower than HMRC interest. Invoice finance makes more sense when the tax problem comes from slow-paying customers rather than weak underlying margins. Neither option fixes a business that consistently sells work below a sustainable price.
A director's loan can be fast, but personal liquidity is not free capital. Document the transaction, consider whether the director can afford the risk and check the tax consequences. Don't drain personal savings merely to preserve a company that has no workable recovery plan.
Negotiating with suppliers may release cash, but directors must avoid unfairly prioritising creditors without understanding their duties. Cutting subscriptions and discretionary spending helps only when the savings are meaningful and immediate. The best alternative is often a combination of tighter spending, stronger collections and a smaller, affordable HMRC arrangement.
Compliance Risks and When to Get Professional Help
Signing a payment plan doesn't close the matter. It creates a new set of obligations. Miss an agreed payment, fall behind with later filings or fail to pay future liabilities, and HMRC can treat the arrangement as defaulted. Interest continues to matter, and the company may face renewed collection activity.
The more serious risk is strategic. A director may celebrate the agreement, then carry on with the same pricing, drawings, dividend policy and spending pattern that created the shortfall. The plan buys time, but it doesn't improve gross margin, accelerate debtor payments or correct an overdrawn cash position.
Watch for the warning signs
Professional help is justified when:
- Cash remains tight after the plan starts: The forecast doesn't produce enough surplus for both tax and normal trading.
- Credit reliance keeps rising: The company uses one facility to fund another liability.
- Tax planning is outdated: Remuneration, pension funding, dividends, expenses and profit extraction haven't been reviewed as the company has grown.
- The group structure is complicated: Related companies affect instalment thresholds and funding decisions.
- Solvency is uncertain: The company can't meet debts as they fall due, or creditor pressure is accelerating.
A tax adviser can test whether the liability is accurate, examine the company's wider tax position and separate a temporary timing problem from a structural one. An insolvency specialist may be more appropriate where the company cannot pay creditors generally. Don't ask a payment plan to solve a problem that requires restructuring.
Tax Compass provides educational guidance on Corporation Tax deadlines, payment planning and wider limited-company tax strategy, helping directors clarify their options before seeking specialist advice. Visit Tax Compass to review the practical next steps for your company's Corporation Tax position and decide whether a specialist strategy review is warranted.