A Time to Pay arrangement can allow a company to repay overdue tax in affordable monthly instalments rather than paying the entire balance immediately. However, HMRC is not obliged to accept every proposal.

A rejection does not necessarily mean that HMRC believes the company has done something wrong. It usually means that HMRC is not satisfied that the proposed arrangement is affordable, sufficiently short, supported by reliable evidence or likely to result in the debt being paid in full.

It may still be possible to submit a revised proposal, but directors should first understand why the original request failed. In some cases, the rejection is also an indication that the company's financial problems are more serious and that an alternative restructuring or insolvency procedure should be considered.

Molly Monks F.I.P.A of Parker Walsh, a licensed Insolvency Practitioner, regularly advises directors whose companies are unable to pay HMRC and need help assessing whether a Time to Pay arrangement is realistic.

What Is an HMRC Time to Pay Arrangement?

A Time to Pay arrangement is an agreement under which HMRC allows an overdue tax liability to be paid over an agreed period.

It may be available for liabilities such as VAT, PAYE, National Insurance contributions and Corporation Tax. The company is still required to pay the full amount owed, together with applicable interest. Time to Pay is not a reduction, compromise or write-off of the tax debt.

HMRC considers each request individually. Its guidance states that Time to Pay is intended for viable businesses that cannot pay on the original due date but will be able to clear the overdue amount and meet any new taxes that fall due during the arrangement. HMRC normally expects the repayment period to be as short as possible, with arrangements lasting more than 12 months treated as exceptional for business taxes. (GOV.UK)

Your Proposed Monthly Payment May Be Too Low

One of the most common reasons for rejection is that HMRC believes the company can afford to pay more.

A director may calculate the proposed instalment by deciding what feels manageable or by offering whatever remains after all existing expenditure has been paid. HMRC will carry out its own assessment of the company's income, expenditure, assets and access to funding.

It may challenge payments that appear unusually high, non-essential or connected to the directors. This could include significant director remuneration, repayments of a director's loan account, payments to related businesses, discretionary capital expenditure or costs that have not been properly explained.

HMRC's position is that the company should offer the best proposal it can realistically afford. It will not ordinarily accept a lower payment simply because the director would prefer to retain additional cash within the business. (GOV.UK)

A proposal is therefore more likely to succeed where every material cost can be explained and the monthly payment is supported by a detailed cash flow forecast.

The Repayment Period May Be Too Long

HMRC expects tax debts to be cleared as quickly as the company can reasonably afford.

A proposal to repay £100,000 at £2,000 per month may appear affordable, but it would take more than four years to clear before allowing for interest. HMRC may consider that period unacceptable, particularly if the business continues to generate significant turnover or holds assets that could be used to reduce the debt.

Time to Pay arrangements for business taxes are usually expected to last less than 12 months. Longer arrangements are possible, but they are exceptional and require stronger evidence that the company is viable and that the proposed period reflects its genuine maximum ability to pay. (GOV.UK)

Simply requesting a longer arrangement does not make the proposal more affordable in HMRC's view. The company must demonstrate why a shorter period is impossible and why its position is expected to improve.

HMRC Is Not Satisfied That the Company Can Pay Future Taxes

A Time to Pay arrangement only deals with specified existing liabilities. The company must usually continue paying all new VAT, PAYE, Corporation Tax and other liabilities in full and on time.

This means that the cash flow must support both the proposed Time to Pay instalment and the company's ongoing tax obligations.

For example, a business may be able to afford a monthly repayment of £5,000 towards historic VAT arrears. However, if it is already struggling to reserve enough money for its next VAT return, the proposal does not solve the underlying problem. It simply postpones the point at which the debt increases again.

HMRC's guidance makes clear that it must be satisfied that the business can make the proposed instalments and meet its ongoing liabilities. Where future taxes are likely to go unpaid, HMRC may reject the arrangement to avoid increasing the amount at risk. (GOV.UK)

HMRC Has Concerns About the Company's Viability

Time to Pay is intended to support a business through a temporary financial difficulty. It is not designed to keep an unviable company trading indefinitely.

HMRC may reject a proposal where the company has been making persistent losses, its turnover is continuing to fall, it has no credible source of future work or it is dependent on uncertain events.

Directors often explain that the company expects to win a major contract, collect a large debtor, obtain investment or experience an increase in sales. HMRC may ask whether contracts have been signed, when funds will be received and what evidence supports the forecast.

HMRC's internal guidance specifically distinguishes between realistic changes supported by evidence and general expectations that sales will improve. It may also examine whether proposed cost reductions are achievable and how long redundancies, premises changes or restructuring measures will take to produce savings. (GOV.UK)

A forecast based mainly on hoped-for work, potential investment or unsigned contracts may therefore be rejected.

The Cash Flow Forecast Is Incomplete or Unrealistic

A Time to Pay proposal should ordinarily be supported by a detailed and credible cash flow forecast.

The forecast should reflect the company's actual trading position rather than the figures required to make the proposed instalment appear affordable. It should include realistic sales receipts, wages, rent, finance payments, supplier costs, tax liabilities and any seasonal fluctuations.

HMRC may compare the forecast with bank statements, management accounts, VAT returns and previous trading results. If the company has historically generated monthly turnover of £50,000, a sudden forecast increase to £100,000 will need a clear explanation and supporting evidence.

For cases where additional evidence is required, HMRC's guidance refers to a cash flow forecast extending from the current month to at least three months beyond the proposed end of the arrangement. This allows HMRC to assess not only whether the company can complete the arrangement, but also whether it is likely to remain viable afterwards. (GOV.UK)

A forecast that ends on the date of the final instalment may not demonstrate that the company has a sustainable future.

The Company Has Assets or Other Funding Options

HMRC may reject a proposal if it believes that the debt could be reduced more quickly by using available assets.

The company may own vehicles, machinery, stock, investments, surplus property or other assets that are not essential to its continued operation. HMRC may expect the directors to consider selling or refinancing these assets before asking for an extended repayment period.

HMRC's public guidance states that a company must reduce its debt as much as possible before setting up a payment plan, including by releasing value from assets such as stock, vehicles and shares. HMRC may also ask whether directors can introduce personal funds, obtain lending or extend credit to the company. (GOV.UK)

A director is not automatically personally liable for the company's tax simply because HMRC asks whether personal funds are available. However, HMRC may take the view that a proposal is not the company's best offer if obvious funding options have not been explored.

Directors should be cautious before securing company borrowing against personal property or introducing funds that they cannot afford to lose. The company's overall viability should be assessed before further money is committed.

The Company's Tax Returns Are Not Up to Date

HMRC needs to know the full extent of the company's tax liability before agreeing how it will be paid.

If VAT returns, PAYE submissions, Corporation Tax returns or other required documents are overdue, HMRC may be unable to establish the correct debt. Its guidance states that where a business tax return is overdue, a Time to Pay arrangement cannot normally be agreed until the return has been submitted. HMRC may allow a short period for the filing to be completed, but enforcement can continue if the deadline is missed. (GOV.UK)

Directors should therefore ensure that all outstanding returns are prepared and filed promptly. Estimated liabilities or assessments may be materially different from the amount ultimately due, which can undermine a proposal based on an incomplete figure.

Future returns must also be submitted on time while an arrangement is operating. Failure to do so can result in an existing arrangement being cancelled.

HMRC Has Not Been Told About All the Company's Tax Debts

A proposal should account for the company's complete HMRC position.

It is not enough to deal with a VAT liability while ignoring PAYE arrears, Corporation Tax, penalties or another tax account. HMRC may reject or later cancel an arrangement if it discovers an additional debt that was not disclosed.

HMRC also expects the information given during negotiations to be complete and accurate. Its conditions state that taxpayers must disclose all HMRC debts, remain honest about their need for Time to Pay and report any improvement in their ability to pay. (GOV.UK)

Before contacting HMRC, the company should reconcile its records against HMRC's figures and identify every outstanding return, payment, penalty and interest charge. Any disagreement over the amount owed should be raised separately and should not simply be omitted from the proposal.

The Company Has Previously Defaulted on an Arrangement

Previous payment history can influence HMRC's assessment of risk.

A failed Time to Pay arrangement does not necessarily prevent the company from obtaining another one. However, HMRC is likely to ask why the earlier arrangement failed, what has changed and why the new proposal is more reliable.

Repeated defaults, missed tax payments and a pattern of contacting HMRC only when enforcement action is imminent may cause HMRC to question whether the company is experiencing a temporary problem or has a continuing inability to meet its obligations.

The size of the debt, the proposed repayment period and the company's previous compliance are among the factors HMRC uses when determining the level of risk associated with a request. (GOV.UK)

A revised proposal should therefore address the previous failure directly rather than assuming it will be overlooked.

HMRC Believes the Company Can Pay in Full

Time to Pay is intended for companies that genuinely cannot pay on the due date. It is not available merely because paying the liability would be inconvenient or would reduce the company's cash reserves.

HMRC distinguishes between a business that cannot pay and one that is unwilling to pay. A business may have money available but still qualify as unable to pay if using that money would prevent it from meeting essential costs, such as wages, and force it to cease trading. However, this must be demonstrated rather than simply asserted. (GOV.UK)

Where the company has a substantial bank balance, easily realisable assets or access to sufficient finance, HMRC may require payment in full or a significant immediate payment before considering instalments for the balance.

The Proposal Does Not Explain Why the Debt Arose

HMRC will usually want to understand the cause of the arrears and what has been done to prevent the same problem recurring.

A temporary loss of a customer, an unexpected bad debt, a delayed project or a one-off operational problem may support a Time to Pay request, particularly where the company has already taken corrective action.

The position is more difficult where tax has been used repeatedly as working capital, the company has been underpaying HMRC for a prolonged period or the directors cannot explain why the liability was allowed to accumulate.

A proposal should therefore do more than state how much the company can pay each month. It should explain what caused the problem, when the position changed, what action has been taken and why the company will be able to remain compliant in the future.

Can I Submit a Revised Proposal?

A rejection does not necessarily prevent the company from approaching HMRC again.

The director should first ask HMRC to explain clearly why the proposal was refused. HMRC's own guidance requires the reason for rejection and the intended enforcement action to be explained. It may also seek an immediate interim payment and will generally accept voluntary payments without treating them as an agreed Time to Pay arrangement. (GOV.UK)

A revised proposal should address the specific reason for the rejection. Reducing the requested period without correcting an unrealistic cash flow forecast is unlikely to resolve viability concerns. Similarly, increasing the monthly instalment will not help if the company cannot also pay its ongoing taxes.

The revised submission may need to include current management accounts, recent bank statements, an aged debtor report, details of company assets, evidence of confirmed contracts and a cash flow forecast covering the full repayment period and the months following it.

Any new proposal must remain genuinely affordable. Offering an amount that the company cannot maintain may only delay enforcement and create a further default.

What Happens After HMRC Rejects Time to Pay?

If no acceptable agreement is reached, HMRC can require the full balance to be paid and continue with debt recovery.

The action taken will depend on the amount owed, the history of the case, the company's assets and the stage already reached. HMRC may instruct debt collectors, use enforcement powers to take control of company goods, commence court proceedings or present a winding-up petition.

HMRC's published guidance confirms that it may use a range of debt enforcement powers where tax remains unpaid. (GOV.UK)

A rejected proposal should therefore not be ignored. Continuing to make unauthorised monthly payments does not create a Time to Pay arrangement and may not prevent further action.

If the company receives a notice of enforcement, statutory demand, winding-up petition or communication from HMRC's enforcement teams, directors should obtain advice immediately.

Does Rejection Mean the Company Must Enter Liquidation?

Not automatically.

The company may be able to make a stronger proposal, secure appropriate funding, collect outstanding debts, reduce costs or sell non-essential assets. A temporary problem can sometimes be resolved where the underlying business remains profitable.

However, a rejection should prompt an honest assessment of whether the company can pay both the historic tax and its future liabilities.

If the cash flow shows that the company cannot meet the proposed instalments without missing new taxes, the problem may not be capable of being resolved through Time to Pay. Continuing to trade while arrears increase can worsen the position for HMRC and other creditors.

A company is insolvent where it cannot pay its debts as they fall due or its liabilities exceed its assets. Once insolvency arises, the directors' priorities shift towards protecting the interests of the company's creditors. (GOV.UK)

Depending on the circumstances, the available options may include refinancing, a Company Voluntary Arrangement, administration or a Creditors' Voluntary Liquidation.

Speak to Parker Walsh

HMRC may reject a Time to Pay proposal because the payments are too low, the requested period is too long, the company cannot meet future tax liabilities or the supporting information does not establish that the business is viable.

The rejection does not always mean that the company must close. However, submitting repeated proposals without addressing the underlying concerns can waste valuable time while interest continues and enforcement action progresses.

Molly Monks F.I.P.A of Parker Walsh is a licensed Insolvency Practitioner and provides clear, confidential advice to directors dealing with HMRC arrears.

Parker Walsh can assess the company's financial position, review whether a Time to Pay arrangement is sustainable, assist with preparing a realistic proposal and explain the alternative options where the company cannot afford to repay HMRC in full.

Frequently Asked Questions

Why did HMRC reject my monthly payment offer?

HMRC may believe that the company can afford a higher payment, that the proposed period is too long or that the figures do not demonstrate an ability to pay future tax liabilities. The precise reason should be requested from the HMRC officer dealing with the case.

Can HMRC refuse a Time to Pay arrangement?

Yes. Time to Pay is discretionary and assessed on a case-by-case basis. HMRC is not required to accept a proposal merely because the company cannot pay the debt immediately.

Can I make another proposal after rejection?

Potentially, yes. A revised proposal is more likely to be considered where it contains new or corrected information and directly addresses the reason for the original rejection.

How long will HMRC allow me to repay company tax?

There is no automatic entitlement to a particular period. HMRC expects arrangements to be as short as possible. For business taxes, periods exceeding 12 months are exceptional.

Will interest stop if Time to Pay is agreed?

No. Applicable interest continues to be charged where tax is paid after its original due date, even when HMRC has agreed a Time to Pay arrangement. (GOV.UK)

Can HMRC ask me to use personal money?

HMRC may ask whether a director is able to introduce personal funds or obtain finance. That does not automatically make the director personally responsible for the company's tax debt, and independent advice should be obtained before personal assets are put at risk.

What happens if I ignore the rejection?

HMRC may continue enforcement and require the full balance to be paid. Depending on the circumstances, this can eventually include action against company assets or a winding-up petition.

Should I continue trading after HMRC rejects the proposal?

That depends on whether the company remains viable and can avoid increasing its liabilities. Directors should not continue trading solely in the hope that HMRC will eventually accept an unaffordable arrangement. Where insolvency is a concern, professional advice should be obtained promptly.

FAQs

What evidence helps most when HMRC has rejected a proposal?

A detailed cash flow forecast covering the arrangement period and at least three months beyond it, alongside bank statements and management accounts, gives HMRC the clearest picture of affordability.

Does a rejected Time to Pay proposal count as a default?

No. A rejection simply means HMRC has not agreed to the proposal, so nothing has yet been broken. It only becomes a default if an agreed arrangement is later missed.

How quickly should a company respond after rejection?

Promptly. HMRC can begin enforcement once a proposal is refused, so directors should seek advice and prepare a revised submission or alternative plan without delay.

Can a smaller company still qualify for Time to Pay?

Yes, size is not the deciding factor. HMRC looks at whether the business is viable, whether the proposal is affordable and whether future taxes can still be met.

Is professional advice necessary before resubmitting a proposal?

It is strongly recommended. An insolvency practitioner can identify why the original proposal failed and help present a stronger, better evidenced case to HMRC.

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