HMRC Time to Pay: Always the First Port of Call
Before exploring any external borrowing, it is essential to understand HMRC's Time to Pay (TTP) scheme. TTP is an arrangement that allows individuals and businesses to pay outstanding tax liabilities over an extended period — typically 6 to 12 months for most liabilities, though longer arrangements are sometimes agreed for larger or more complex cases.
Time to Pay arrangements are available for Self Assessment income tax, PAYE, VAT, Corporation Tax, and other HMRC liabilities. You can set up a TTP arrangement online through your HMRC personal or business tax account for debts under £30,000, without needing to call. For larger amounts, you will need to contact HMRC directly. HMRC is generally willing to agree TTP arrangements where the taxpayer is engaged, transparent about their situation, and can demonstrate an ability to meet the proposed instalments.
The key thing to understand about TTP is that HMRC still charges interest on any outstanding balance during the arrangement. As of 2024–25, HMRC's late payment interest rate was 7.75% — significantly higher than the Bank of England base rate and potentially higher than secured loan rates available to homeowners with good equity. This is an important comparison: if a secured loan rate is materially lower than HMRC's interest rate, and the TTP term is limited to 12 months, a secured loan may be cheaper overall for larger liabilities.
However, TTP has no arrangement fees, does not put your home at risk, and involves no credit checks. For manageable liabilities that can be cleared within a year, it is almost always the right first step.
When a Secured Loan May Be Better Than HMRC Time to Pay
There are specific circumstances where a secured loan can be the more practical or cost-effective solution compared to an HMRC TTP arrangement. The most common scenarios include: the tax liability is large — say, £30,000 or more — and HMRC is only willing to agree a short repayment term that is not cash flow sustainable; the taxpayer has already had a TTP arrangement and HMRC is reluctant to agree a further one; the interest accumulating on the HMRC account is high and a secured loan rate would be meaningfully lower; or the taxpayer needs certainty over a longer repayment period to manage their business finances effectively.
For example, a self-employed sole trader with a £60,000 tax liability who cannot comfortably settle within 12 months may find that a secured loan at 6%–8% over five years is both more affordable month-to-month and cheaper in total interest than paying HMRC's 7.75% rate on a forced 12-month plan with potential penalties for missing payments.
A secured loan also provides immediate settlement of the HMRC liability, which removes the risk of enforcement action — including charging orders on property, seizure of assets, or in extreme cases, winding-up petitions for companies. Settling HMRC in full and repaying a secured loan on your own terms can reduce the commercial and reputational risk of an ongoing HMRC debt.
It is strongly recommended to take advice from an accountant or tax adviser before deciding between TTP and external finance. The right answer depends on the nature of the liability, HMRC's current stance, and your specific financial circumstances.
