Yes. If you cannot pay a VAT bill in full, HMRC can agree a Time to Pay arrangement so you pay what you owe in monthly instalments, either through HMRC’s online payment plan service or by contacting the VAT payment helpline. Asking early is what counts: a plan proposed within 15 days of the due date can stop VAT late payment penalties altogether, although late payment interest still runs until the debt is cleared.

What is a VAT Time to Pay arrangement?

A Time to Pay arrangement is an agreement with HMRC that lets you defer payment of VAT you owe and clear it in instalments. Schedule 26 to the Finance Act 2021, which contains the VAT late payment penalty rules, defines a time to pay agreement in paragraph 10(4) as an agreement between HMRC and a person that payment of an amount of tax may be deferred for a period. HMRC’s guidance on VAT late payment penalties describes the arrangement as flexible and adapted to the circumstances of the business, and says it can cover all outstanding amounts, including penalties and interest.

Plans can cover VAT on a return, VAT following a correction or amendment, and VAT assessed by HMRC. Two kinds of payment sit outside the late payment penalty regime, according to the same guidance: VAT payments on account and instalments under the Annual Accounting Scheme. For an overview of arrangements across all taxes, see our guide to HMRC Time to Pay arrangements.

Can I set up a VAT payment plan online without calling HMRC?

GOV.UK’s guide If you cannot pay your tax bill on time links to an online service that checks whether you are eligible and, if so, lets you set up a plan without speaking to anyone. To use it you need:

  • the reference number for the tax, which for VAT is your registration number
  • UK bank account details, and authority to set up a Direct Debit on that account
  • details of the business’s income and spending

The online service decides eligibility when you use it, and the current GOV.UK guide does not publish fixed eligibility limits, so we have not quoted any. If the service says you cannot set up a plan online, the guide says you must contact HMRC. HMRC’s contact page lists a VAT payment helpline for businesses that have missed a VAT payment deadline, on 0300 200 3831, and an online digital assistant that can transfer you to webchat.

What does HMRC look at when a plan is agreed by phone?

HMRC’s Debt Management and Banking Manual sets out how its staff handle requests. For business debts below £250,000 (DMBM802210), an adviser can use their own judgement where you need three months or less. For longer arrangements of up to 12 months they work through a negotiating framework of questions, and arrangements over 12 months are described as exceptional, need a manager’s authority and usually involve a Corporate Debt Questionnaire. Debts of £250,000 and over attract more scrutiny (DMBM802220), and debts of £750,000 and over need a review by an HMRC Compliance Accountant (DMBM802230).

The GOV.UK guide says HMRC will ask how quickly you can pay and test whether your proposal is realistic and affordable. A company is expected to reduce the debt as far as possible first, for example by releasing stock, vehicles or shares, and directors may be asked to put in personal funds, accept lending or extend credit. Where the evidence needs to go further, DMBM802300 lists what HMRC may request: a cash flow forecast running to at least three months beyond the end of the proposed plan, a letter from the bank confirming facilities, the latest annual accounts, management accounts and forecasts.

Returns come first. DMBM803040 says HMRC cannot agree an arrangement while a return is overdue. Where it believes you intend to file, it can hold off recovery for up to 7 days for a VAT return. If your VAT is in a group registration, DMBM802260 says the request is treated as coming from every member, and any PAYE or other debts of group companies are normally brought into the same negotiation.

How does a payment plan change VAT late payment penalties?

For VAT accounting periods starting on or after 1 January 2023, late payment penalties depend on how long VAT stays unpaid, and Schedule 26 gives a Time to Pay arrangement a specific effect at each stage.

  • Days 1 to 15. No penalty is payable if the VAT is paid in full, or if you propose a plan before the end of the 15 day period and HMRC agrees it, even if the agreement is reached later (paragraphs 4 and 6(1)).
  • Days 16 to 30. If you propose a plan in this window and it is agreed, you pay only the first part of the first penalty: 3% of the VAT unpaid at day 15 (paragraphs 5 and 6(2)).
  • Day 31 onwards. A second penalty accrues daily at 10% a year on the unpaid VAT. If a plan is agreed, the penalty stops accruing from the day you made the proposal that led to it (paragraph 8(5) and (6)).

HMRC’s guidance puts it the same way: ask for Time to Pay on or between days 1 and 15 to avoid penalties, by day 30 to avoid the higher first penalty, and at any point after that to stop the second penalty growing. These rules sit alongside, not instead of, VAT penalty points, which apply to late returns.

Does interest still run while I pay in instalments?

Yes. HMRC charges late payment interest from the first day the VAT is overdue until it is paid in full, and DMBM803545 confirms interest continues in every case where Time to Pay is agreed. HMRC normally builds the interest into the plan. The late payment interest rate is the Bank of England base rate plus 4% from 6 April 2025, and our guide to HMRC late payment interest explains how it is calculated. Because interest runs daily, GOV.UK points out that paying more each month means paying less overall.

Worked example: asking on day 10 compared with day 40

Illustration only. A business owes £12,000 of VAT on a quarterly return and cannot pay on the due date.

  • It proposes a six month plan on day 10 and HMRC agrees it. No first or second late payment penalty is charged. Late payment interest runs on the reducing balance.
  • If it waits and proposes the plan on day 40, the first penalty is 3% of £12,000 at day 15 plus 3% of £12,000 at day 30, so £720. A second penalty also accrues at 10% a year on £12,000 from day 31 until day 40, when the proposal is made. Interest is charged throughout.

What conditions come with a VAT Time to Pay arrangement?

DMBM803540 lists the standard conditions. You must have told HMRC about all your HMRC debts and been honest about your ability to pay. All future returns must be filed on time and all future liabilities paid in full and on time. Any repayment HMRC owes you is expected to be set against the debt, and you must tell HMRC if your circumstances change. If you pay VAT by Direct Debit, DMBM802260 says you should ask your bank to stop the collection for the return covered by the plan, because the online VAT Direct Debit runs separately from the plan’s own Direct Debit.

What happens if I miss a payment under the plan?

GOV.UK says HMRC will contact you to find out why and will try to rearrange or renegotiate the plan. If you have a new bill you cannot pay, you may be able to add it to the existing plan. If the arrangement is cancelled because you broke its terms, paragraphs 7 and 9 of Schedule 26 allow HMRC to charge the first and second late payment penalties as if the agreement had never existed. HMRC’s VAT penalty guidance confirms this.

If you do not agree a plan or ignore HMRC’s letters, the GOV.UK guide lists the recovery options HMRC may use, including debt collection agencies, taking goods, recovering money directly from bank accounts, court action and, for a business tax, winding up a company. There is no right of appeal against a refusal of Time to Pay, but you can complain about how you were treated.

What are the common mistakes with VAT payment plans?

  • Waiting for HMRC’s reminder before asking. The penalty protection depends on when you make the proposal.
  • Asking for a plan while a VAT return is still outstanding. File first, even if you cannot pay.
  • Leaving the VAT Direct Debit in place, so the full amount is collected anyway.
  • Agreeing instalments the business cannot keep up while also paying new quarters. Missing a later VAT payment breaks the arrangement and brings the penalties back.
  • Assuming a plan stops interest. It does not, and interest is charged on the full outstanding balance until it is cleared.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.