Recording an HMRC Time to Pay arrangement

Tax under a Time to Pay arrangement is still a liability for the full amount owed, plus late payment interest accrued to the year end, and it stays within creditors for taxation and social security. Instalments falling due within 12 months of the balance sheet date are shown within one year; later instalments can be shown after more than one year only if the arrangement was agreed by the year end and, at that date, the company had a right to defer payment that HMRC could not take away. An arrangement agreed after the year end does not move anything out of current liabilities.

Does a Time to Pay arrangement change the liability itself?

No. It changes when the tax is collected, not how much is owed. HMRC’s guidance says there is no time limit on how long a payment plan can last; its length depends on what is owed and what the business can afford. The arrangement itself is described in our guide to Time to Pay arrangements. The Debt Management and Banking Manual at DMBM803545 says that in all cases where Time to Pay is agreed, interest continues to be charged, and HMRC staff should look to include the interest in the arrangement.

The measurement rules follow from that:

• Corporation tax is current tax under Section 29 of FRS 102. Paragraph 29.5 measures it at the amount the company expects to pay, and paragraph 29.17 says current tax liabilities are not discounted, so the balance is not reduced to reflect later payment.
• PAYE, National Insurance and VAT are owed under statute, not under a contract. The FRS 102 glossary defines a financial liability as a contractual obligation, so these balances fall outside the amortised cost rules for basic financial instruments and are carried at the amount due.
• Late payment interest accrues up to the balance sheet date and is a separate creditor and expense. Its tax and presentation treatment is covered in HMRC penalties and interest in the accounts.

Where does the debt go in the balance sheet?

In the statutory formats, tax sits in the line “Other creditors including taxation and social security”, which appears both under creditors falling due within one year and under creditors falling due after more than one year. Note 9 to the formats in the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 requires the amount for taxation and social security to be shown separately from other creditors, and note 7 in the small companies regulations makes the same demand. In practice the creditors note shows corporation tax, and other taxation and social security, on their own lines, in each time band. How the split works for all creditors is explained in creditors due within and after one year.

What decides whether an instalment is due after more than one year?

FRS 102 paragraph 4.7 classifies a creditor as due within one year when the company does not have an unconditional right, at the end of the reporting period, to defer settlement for at least 12 months after the reporting date. Paragraph 9 of Schedule 10 to the 2008 Regulations adds that an instalment is treated as falling due on the earliest date the creditor could require payment if it exercised all options and rights available to it.

Applied to a Time to Pay arrangement in force at the year end, each instalment due within the next 12 months is current, and instalments due later are candidates for the after one year heading. The question is whether HMRC could demand them sooner.

Can HMRC’s right to cancel keep the whole debt within one year?

It can, and this is the judgement that needs care. DMBM803540 lists the conditions of an arrangement: disclosure of all HMRC debts, honesty, all future returns filed on time, all future liabilities paid on time, repayments set off against the debt, and telling HMRC of changes in circumstances. DMBM804200 says HMRC is bound by arrangements it enters into but may cancel if new facts come to light, the customer has misled HMRC, the customer defaults, a condition is breached, or it becomes apparent that tax is at risk.

Two positions follow.

• If the company was behind on instalments, or on later returns or payments, at the year end, HMRC was already entitled to cancel and demand the balance. There was no unconditional right to defer, and the whole debt is within one year.
• If the company was fully up to date, the cancellation rights depend largely on its own future conduct. Even so, the ground that tax is at risk is in HMRC’s hands, so whether the right to defer is unconditional is a matter of judgement. One view is that a compliant company may present the later instalments as due after one year; the other is that the whole balance stays current. Whichever view is taken should be documented, applied consistently and explained in the notes if material.

What if the arrangement is agreed after the year end?

Paragraph 4.7 looks at rights existing at the end of the reporting period. If the debt was overdue and no arrangement existed at that date, HMRC could demand the full amount, so it is all within one year even if a plan is agreed before the accounts are signed. Under paragraph 32.2 the later agreement reflects conditions arising after the year end, so it is a non adjusting event; paragraph 32.10 requires disclosure of its nature and financial effect if material.

Are late payment penalties provided for?

For taxes covered by Schedule 56 to the Finance Act 2009, which include PAYE, paragraph 10 says that if HMRC agrees to defer payment, the taxpayer is not liable to late payment penalties that would otherwise arise between the request and the end of the deferral period. If the agreement is broken and HMRC serves a notice, the penalty becomes payable from the date of the notice. While the company is keeping to the plan there is no present obligation, so under FRS 102 paragraph 21.12 the suspended penalty is a contingent liability, disclosed unless an outflow is remote. If a breach has happened and a penalty notice is probable, paragraph 21.4 may require a provision. What happens after a missed payment is covered in missing a Time to Pay instalment.

How does this look in numbers?

Illustration only. A company with a 31 March 2027 year end owes £60,000 of PAYE and National Insurance and £48,000 of corporation tax. In February 2027 HMRC agrees a plan of 24 monthly instalments of £4,500 starting in April 2027. Interest of £1,200 has accrued by 31 March. The company is up to date at the year end and takes the view that it has a right to defer the later instalments.

Item	Within one year	After more than one year
Instalments April 2027 to March 2028 (12 × £4,500)	£54,000
Instalments April 2028 to March 2029 (12 × £4,500)		£54,000
Accrued late payment interest	£1,200

The note splits each band between corporation tax and other taxation and social security, following the order in which the instalments clear each debt. Had the plan been agreed in May 2027, all £108,000 and the interest would be within one year, with the plan disclosed as a post balance sheet event.

What about going concern?

Needing a Time to Pay arrangement is often a sign of cash pressure. FRS 102 paragraph 3.8 requires management to assess going concern looking at least 12 months from the date the accounts are authorised for issue. Paragraph 3.8A requires disclosure of significant judgements in that assessment, and paragraph 3.9 requires disclosure of material uncertainties that may cast significant doubt on the company’s ability to continue; paragraph 1AC.2C applies both to small entities. Forecasts should show the instalments being met alongside future tax as it falls due, because DMBM803540 makes paying new liabilities on time a condition of the plan.

What mistakes come up?

• Moving instalments to after one year on the strength of a plan agreed only after the year end.
• Showing later instalments as long term when the company was already in default at the balance sheet date.
• Leaving out interest accrued to the year end because HMRC has not yet charged it.
• Netting tax repayments due from HMRC against the debt without considering whether set off is permitted.
• Burying the arrangement in trade creditors instead of the separate taxation and social security line.

For VAT specific points, see VAT Time to Pay arrangements.

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Related Accountapedia entries

• Recording dividends in the accounts
• Loan arrangement fees and effective interest
• Low earners in net pay pension schemes: top up payments
• Time recording and WIP in a practice
• Recording section 455 tax in the accounts

Sources

• GOV.UK: How much you pay
• GOV.UK: Manual page DMBM803545
• Financial Reporting Council: FRS 102 September 2024 tmKYWO6
• legislation.gov.uk: SI 2008/410, schedule 1
• legislation.gov.uk: SI 2008/409, schedule 1
• legislation.gov.uk: SI 2008/410, schedule 10
• GOV.UK: Manual page DMBM803540
• GOV.UK: Manual page DMBM804200
• legislation.gov.uk: Act 2009 c. 10, schedule 56
• legislation.gov.uk: Act 2009 c. 10, schedule 56

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.