Contact HMRC before the deadline
If you can see that a tax bill cannot be paid in full on time, contact HMRC as soon as you know. HMRC's own guidance says this may stop further penalties being added, and that a payment plan (often called Time to Pay) can mean lower or no late payment penalties. Waiting until the debt is chased leaves fewer options.
For VAT, late payment penalties start once a payment is 16 or more days overdue, so the first two weeks after the deadline matter.
What a payment plan is
A payment plan lets you pay an overdue tax bill in monthly instalments, usually by Direct Debit. HMRC checks that the plan is affordable. If you cannot agree one, HMRC will ask for the amount in full.
- Which taxes: HMRC's help for businesses that cannot pay covers VAT, employer's PAYE, corporation tax and Self Assessment. You can check whether you can set a plan up online; otherwise HMRC has a payment problems phone line for each tax.
- How long: there is no fixed time limit. It depends on how much you owe and what you can afford each month.
- Interest: charged on the unpaid tax at the late payment rate, which is the Bank of England base rate plus 4%. Paying faster means paying less interest.
- New bills: HMRC says a new tax bill can be added to an existing plan.
What HMRC will ask you
If you set up a plan by phone, HMRC asks whether you can pay in full, how much you can pay each month, whether other taxes are due, what the business earns and spends each month, and what savings or assets it has. HMRC expects savings or assets to be used to reduce the debt. GOV.UK says you will usually be asked to pay around half of what is left over each month after fixed outgoings.
Have ready: the tax reference, the amount owed, the business's bank details for the Direct Debit, and a realistic month-by-month view of money in and out.
Use a forecast to work out what you can offer
A cash flow forecast answers HMRC's questions directly: what comes in each month, what must go out, and what is left. It also stops you offering more than you can pay. A missed instalment means HMRC will contact you, and the plan may have to be renegotiated.
- Build the next 13 weeks from your real bank balance, unpaid invoices and bills. The 13-week cash flow forecast template is a free start.
- Include the taxes that will fall due during the plan, such as the next VAT return and each month's PAYE.
- Keep a buffer for the month with the lowest balance. See how much cash buffer you need.
- Offer an instalment the lowest month can carry, and note the date the overdue tax would be cleared.
Stopping it happening again
Most tax shortfalls come from tax that was spent before it was due. Put VAT and corporation tax aside as you earn them (how much to set aside for corporation tax, VAT and cash flow) and keep each payment in your forecast on its due date. Cadence adds VAT, PAYE and corporation tax to the forecast and warns when a week falls below your buffer, weeks ahead. You can try it free for 14 days.
If the business cannot pay its debts as they fall due more generally, not only a single tax bill, take advice from an accountant or a licensed insolvency practitioner early.
This guide is general information, not tax, legal or financial advice. Details as published on GOV.UK in October 2026.