VAT payment plans: spreading a VAT bill with HMRC

If you cannot pay a VAT bill in full, HMRC may let you spread it over monthly instalments through a payment plan, also called a Time to Pay arrangement. Debts of £50,000 or less can usually be set up online, without speaking to anyone. Interest still runs, but a plan agreed quickly stops VAT late payment penalties building up.

What is a VAT payment plan?

A VAT payment plan is an agreement with HMRC to pay overdue VAT in monthly instalments by Direct Debit. GOV.UK says HMRC checks that the plan is affordable before agreeing it.

HMRC usually expects instalments of about half your monthly disposable income, after rent, utilities and fixed costs. You can choose to pay more. HMRC also expects a business to use savings or assets to cut the debt first, and it may ask company directors to put in personal funds.

Can you set up a VAT payment plan online?

You can set up a VAT plan online if you meet all of HMRC’s conditions. ICAEW’s summary of the HMRC criteria lists them as:

• you have missed the deadline to pay a VAT bill
• you owe £50,000 or less
• the debt is for an accounting period that started in 2023 or later
• you plan to clear the debt within 12 months
• you have no other HMRC payment plans or debts
• you have filed all your tax returns

The online service is closed to businesses in the Cash Accounting Scheme or the Annual Accounting Scheme, and to those that make VAT payments on account.

The £50,000 limit applies to businesses for VAT and PAYE. Self Assessment plans online have a lower limit of £30,000.

How to set up a VAT payment plan

Follow these steps once your VAT is overdue.

1. File the VAT return. HMRC will not agree a plan while a return is missing.
2. Gather what you need. Have your VAT registration number, UK bank details and the authority to set up a Direct Debit.
3. Work out what you can afford. List monthly income and spending; HMRC accepts a Standard Financial Statement from a debt adviser.
4. Use the online service. Start from the GOV.UK pay in instalments page and sign in with your Government Gateway user ID.
5. If you are not eligible, call HMRC. The VAT payment problems line is 0300 200 3831, Monday to Friday, 8am to 6pm.
6. Keep paying on time. Pay the instalments and every new VAT return in full as it falls due.

Online plan or phone plan: which applies to you?

The route depends on the size of the debt and your VAT set up.

GOV.UK says there is no fixed time limit on how long a plan agreed with HMRC can last. Longer plans are agreed case by case, and HMRC will refuse a plan it does not think you can keep up.

What does a VAT payment plan cost?

A payment plan has no fee, but late payment interest is charged on the unpaid VAT from the day after the due date until you pay in full. HMRC’s interest rates page, updated 6 November 2026, sets the rate at Bank of England base rate plus 4%.

On a £10,000 debt at 7.75%, interest starts at about £65 a month and falls as you pay the balance down.

Does a payment plan stop VAT penalties?

A plan agreed in time can stop late payment penalties. HMRC’s VAT late payment penalty guidance sets these points:

• Up to 15 days late: no penalty.
• 16 to 30 days late: a first penalty of 3% of the VAT owed at day 15.
• 31 days or more: a further 3% of the amount owed at day 30, plus a second penalty at 10% a year on the balance.

HMRC says a Time to Pay arrangement can reduce or stop these penalties. If you break its terms, HMRC can cancel the plan and charge both penalties as if it had never existed. See VAT penalties and surcharges for how late filing points work alongside this.

What advisers should do

1. Contact HMRC before day 15, ideally by the due date, to keep penalties off the bill.
2. Check the client’s scheme first; cash and annual accounting rule out the online route.
3. Build the next quarter’s VAT into the cash flow forecast, since a missed new return can end the plan.
4. Keep HMRC’s numbers to hand; our list of HMRC telephone numbers has the other lines.

Frequently asked questions

Can I pay my VAT bill in instalments?

Yes, if HMRC agrees a payment plan. You pay monthly by Direct Debit, and debts of £50,000 or less can usually be set up online.

How long can a VAT payment plan last?

The online service requires you to clear the debt within 12 months. Longer plans can be agreed by phone, as HMRC sets no fixed maximum.

Do I pay interest on a VAT payment plan?

Yes. Late payment interest runs at 7.75% a year, rising to 8.00% from 24 November 2026, until the debt is paid.

What is the HMRC phone number for VAT payment problems?

Call 0300 200 3831, Monday to Friday, 8am to 6pm. The line is closed on bank holidays.

Can HMRC refuse a VAT payment plan?

Yes. HMRC will refuse a plan if it does not think you can keep up the payments, and it can ask for the full amount instead.