Yes, you can pay VAT in instalments in the UK. HMRC offers a formal arrangement called a Time to Pay (TTP) agreement, which lets businesses spread their VAT bill across several months instead of paying it all at once. This is not automatic — you need to apply for it — but it is a real, accessible option for business owners who are going through a difficult period with cash flow. If you are struggling to pay your VAT on time, the worst thing you can do is ignore it. The right move is to contact HMRC as soon as possible, explain your situation, and ask about setting up a payment plan.
What Does Paying VAT in Instalments Actually Mean?
When you are registered for VAT in the UK, you collect VAT from your customers and pay it to HMRC — usually every quarter. If you cannot pay the full amount by the deadline, HMRC may allow you to split that payment into smaller, regular amounts over a period of time.
This is done through what HMRC calls a Time to Pay arrangement. Think of it as a structured repayment plan — you and HMRC agree on a schedule, and you pay a set amount each month (usually by Direct Debit) until the debt is cleared.
It is important to understand that this arrangement does not wipe out what you owe. You still pay the full VAT amount. The difference is that you pay it over time, which can take the pressure off your cash flow during a difficult period.
Who Can Apply to Pay VAT in Instalments?
Not every business will automatically qualify. HMRC looks at each application individually and considers a number of things before approving a Time to Pay arrangement.
What Does HMRC Look At When Deciding?
HMRC will generally want to see:
- That you genuinely cannot pay the full amount by the deadline, not that you simply choose not to
- That your business is still trading and has a realistic chance of continuing to operate
- That you have been keeping up with filing your VAT returns on time
- That you do not have other existing payment plans or debts already in place with HMRC (though this does not automatically rule you out)
- That you can afford to make the monthly instalment payments during the arrangement period
HMRC draws a clear distinction between businesses that cannot pay and those that will not pay. If they believe you have funds available but are avoiding paying, they are unlikely to help.
Are There Any Specific Eligibility Criteria for VAT?
Yes. HMRC updated the eligibility criteria for VAT Time to Pay arrangements in 2024, which opened the door for more businesses to use the online self-service option.
For the online route, you typically need to meet these conditions:
- Your VAT debt is up to £50,000
- All your VAT returns are submitted and up to date
- You are applying within 21 days of the payment deadline (some sources indicate up to 28 days, but acting sooner is always better)
- You do not already have another active payment plan with HMRC
If your debt is higher than £50,000, or your situation is more complex, you will need to call HMRC directly to discuss your options.
Important: You cannot use the online self-service option if you are on the Cash Accounting Scheme, the Annual Accounting Scheme, or if you make payments on account. In those cases, you must call HMRC.
How Long Can You Spread the VAT Payments?
The standard period for a VAT Time to Pay arrangement is typically 3 to 12 months. In most straightforward cases, HMRC will expect the debt to be cleared within 12 months.
If your situation is more serious — for example, you are going through significant financial difficulty — it may be possible to negotiate a longer period, especially if you are working with a professional accountant or tax adviser who can present your case clearly. Some sources suggest that with professional help, arrangements of up to 24 months have been agreed.
HMRC is not there to put you out of business. Their goal is to recover the tax owed, and a manageable payment plan is often better for everyone than pushing a business into crisis.
How Do You Apply to Pay VAT in Instalments?
Can You Set It Up Online?
Yes — for smaller debts that meet the eligibility criteria above, you can set up a VAT payment plan online through your HMRC Business Tax Account. The link to start the process is:
https://www.tax.service.gov.uk/set-up-a-payment-plan/govuk/vat/start
You will need your Government Gateway login details and your bank details ready, as HMRC will ask you to set up a Direct Debit to cover the monthly payments.
What If You Need to Call HMRC?
If your debt is over £50,000, or you are not eligible for the online route, you need to call HMRC’s Business Payment Support Service on:
0800 0159 559
When you call, be ready to explain:
- Why can you not pay the full amount right now
- What your current financial position looks like (income, outgoings, any savings or assets)
- How much you can realistically afford to pay each month
- When you expect your cash flow situation to improve
The more honest and clear you are, the better your chances of HMRC agreeing to a reasonable arrangement.
What Happens If You Miss the VAT Deadline Without Applying?
This is where many business owners get into trouble. Missing your VAT payment deadline without contacting HMRC can lead to penalties and interest that stack up quickly.
What Are the Late Payment Penalties for VAT?
HMRC updated its VAT penalty regime in January 2023 and increased the rates further from April 2025. Here is how the penalties currently work:
- Within 15 days of the deadline: No penalty — but interest is still charged from day one
- Day 15 to Day 30: A penalty of 3% of the unpaid VAT applies (increased from 2% in April 2025)
- Day 30: A further 3% penalty on the outstanding amount (bringing the total to 6%)
- Day 31 onwards: A daily penalty at an annual rate of 10% on the unpaid balance continues to build up
On top of these penalties, HMRC charges late payment interest from the very first day the payment is overdue. As of January 2026, the interest rate is 7.75% per year (calculated at the Bank of England base rate plus 4%). This interest accrues daily until the debt is fully paid.
To put it plainly, the longer you leave it, the more expensive it gets.
Does a Time to Pay Arrangement Stop the Penalties?
Yes — and this is one of the most important reasons to apply as early as possible. Once HMRC agrees to a Time to Pay arrangement and you stick to it, late payment penalties stop accruing. However, interest continues to build on the outstanding balance throughout the arrangement period.
This means even if you cannot pay in full right now, getting a TTP in place quickly will stop the penalties from piling up while you work through the repayment.
Will a Time to Pay Arrangement Affect My Business?
It should not affect how you operate day-to-day. However, there are a few things to keep in mind:
- You must continue filing all future VAT returns on time during the arrangement. Missing a return could put the agreement at risk.
- You must continue paying any new VAT bills as they fall due, on top of your instalment payments. The arrangement only covers the existing debt — not future liabilities.
- If you miss an instalment payment, HMRC may cancel the arrangement and take enforcement action, which could include issuing a formal demand, or in serious cases, sending debt collectors.
HMRC treats your compliance history seriously. If you have generally been good at filing and paying on time before hitting this difficulty, it works in your favour.
What If HMRC Refuses the Time to Pay Request?
HMRC does not agree to every application. If they believe your business is not viable in the long term, or that you have the means to pay but are choosing not to, they may decline.
If this happens, you have a few options:
- Appeal or provide more information — sometimes a refusal comes down to incomplete information, and providing more financial details can change the outcome
- Speak to a professional accountant — an experienced accountant or tax adviser can present your case in the best possible light and negotiate on your behalf
- Look at alternative finance — some business owners use short-term business loans or VAT finance products to pay HMRC in full and then repay the lender over time
Ignoring a refusal and simply not paying is not an option — it will lead to enforcement action.
Is There a VAT Deferral Scheme Available?
During the Covid-19 pandemic, HMRC offered a temporary VAT deferral scheme. That scheme has now ended and is no longer available. The only current route for spreading VAT payments is through a Time to Pay arrangement as described above.
Practical Tips to Avoid Getting Into VAT Trouble
Prevention is always better than dealing with the consequences. Here are some straightforward things you can do to stay on top of your VAT:
- Set money aside for VAT as you go. When you invoice a client and collect VAT, move that VAT portion into a separate pot. It is not your money — treat it that way from day one.
- Submit your VAT return on time, even if you cannot pay. Filing late triggers a separate penalty point system. You can minimise damage by at least submitting the return, even if you cannot make the payment immediately.
- Contact HMRC before the deadline, not after. Applying for a Time to Pay arrangement before your payment is due puts you in a much stronger position than calling after you have already missed it.
- Use Making Tax Digital (MTD) compatible software. Keeping accurate, up-to-date records makes it much easier to track what you owe and avoid nasty surprises.
- Work with an accountant. A good accountant will flag issues before they become problems and can help you manage your VAT obligations without stress.
FAQs About Paying VAT on Instalments
Can a sole trader pay VAT in instalments?
Yes. Both sole traders and limited companies can apply for a Time to Pay arrangement with HMRC. The process and eligibility criteria are the same for both.
Will HMRC still charge interest if I have a payment plan in place?
Yes. Even with a Time to Pay arrangement, interest continues to accrue on the outstanding balance at the current rate (7.75% as of January 2026). Penalties, however, stop once the arrangement is agreed upon and maintained.
What if I have missed my VAT deadline and have not yet contacted HMRC?
Contact HMRC as soon as possible. The sooner you get in touch, the more options you have and the lower the penalties are likely to be. Calling after the deadline is not ideal, but it is far better than continuing to delay.
Can I set up a VAT payment plan if I am also behind on other taxes?
It depends. HMRC will look at your overall financial position. Having existing payment plans or debts with HMRC does not automatically disqualify you, but it may make the process more complex. It is worth speaking to an accountant who can help you approach HMRC with a clear and honest picture of your situation.
Do I need to tell my customers or suppliers about the arrangement?
No. A Time to Pay arrangement is a private matter between you and HMRC. There is no obligation to disclose it to anyone else.
Need Help Dealing With a VAT Bill You Cannot Pay?
Dealing with HMRC on your own when you are already under financial pressure can be stressful. Getting the right support early can make a significant difference — both in terms of the outcome and your peace of mind.
At Right Choice Consulting, we help business owners across the UK manage their VAT obligations, deal with HMRC, and get back on track when things get difficult. Whether you need help applying for a Time to Pay arrangement, getting your VAT returns up to date, or simply understanding what you owe and why, we are here to help.
Get in touch with our team today for a free, no-obligation conversation about your VAT situation.
Disclaimer: All the information provided in this article is general in nature and it does not intend to disregard any of the professional advice.