Time to Pay, IVA or Bankruptcy When You Cannot Pay HMRC

Catching up on years of returns often produces a bill that cannot be paid in one go. That is a different problem from the filing itself, and it has its own ladder of solutions, from an informal arrangement with HMRC at one end to formal insolvency at the other. This article sets out the main options so a debt that is genuinely payable over time is not mistaken for a hopeless one. It sits alongside the filing mechanics in the Multi-Year Tax Arrears Roadmap and the disclosure process covered in our piece on the Digital Disclosure Service.

HMRC Time to Pay: the first option

For most people who can pay but need longer, HMRC's Time to Pay arrangement is the right starting point. It spreads the debt over monthly instalments while interest continues to run on the outstanding balance. It keeps the debt with HMRC and out of any formal insolvency process.

For Self Assessment, a Time to Pay plan can be set up online without phoning HMRC where the bill is £30,000 or less and the plan is arranged within 60 days of the payment deadline, with no other tax debts outstanding. GOV.UK explains the process in its guidance on paying an HMRC tax bill in instalments. Above £30,000, or where a longer period is needed, the arrangement is still available but has to be agreed by contacting HMRC directly, and they will ask about income and outgoings.

When Time to Pay is not enough

Time to Pay assumes the debt can be cleared within a reasonable period out of income. Where the total debt is beyond that, or where HMRC is only one of several creditors, a formal debt solution may be needed. The three main routes are a Debt Relief Order, an Individual Voluntary Arrangement and bankruptcy. Tax debts can be included in all three.

Debt Relief Order

A Debt Relief Order suits people with low debts, little income and few assets. The current eligibility limits for England and Wales are total debts under £50,000, assets worth under £4,000 (with a vehicle worth under £4,000 not counted), and surplus income of no more than £75 a month. The application fee was removed in June 2024, so there is no charge to apply. A DRO lasts twelve months, during which creditors covered by it cannot pursue the debt, and the debts are written off at the end if the situation has not improved.

Individual Voluntary Arrangement

An IVA is a formal agreement with creditors, set up through a licensed insolvency practitioner, to pay what you can afford over a fixed period, typically five years, after which the remaining balance is written off. Once approved by the required majority of creditors it binds them all, including HMRC, so HMRC cannot pursue the tax debt separately while the IVA holds. It suits someone with a regular income and a larger debt than a DRO allows, who wants to avoid bankruptcy and protect assets such as a home.

Bankruptcy

Bankruptcy is the route where there is no realistic prospect of paying. Assets, with limited exceptions, pass to a trustee to be sold for the creditors, and most remaining debts including tax are written off. A person normally remains bankrupt for twelve months. There is a fee to apply for your own bankruptcy, and the decision has consequences for credit, for some professions and for any business, so it is the option to take advice on before acting rather than after.

How HMRC behaves as a creditor

HMRC is generally willing to agree Time to Pay where the figures show the debt will be cleared, but it expects the underlying returns to be filed first, because it will not arrange instalments on a debt that has not been quantified. That is why the order of work matters: file the returns, establish the real figure, then deal with payment. HMRC can be bound by an IVA or a DRO like any other creditor, but it can also take recovery action, so engaging early and keeping to any arrangement is what keeps the situation under control.

Common questions about paying a tax debt

Will HMRC let me pay in instalments?

Usually, if the debt can realistically be cleared over a sensible period. For Self Assessment bills of £30,000 or less you can often set the plan up online within 60 days of the deadline; larger debts need to be agreed by contacting HMRC, who will look at your income and outgoings. Interest continues to run either way.

Can a tax debt be included in an IVA or bankruptcy?

Yes. Tax debts are ordinary debts for these purposes and can be included in a Debt Relief Order, an IVA or bankruptcy. Once a formal solution is in place and binding, HMRC is treated like the other creditors covered by it.

Do I have to file the returns before sorting out payment?

In practice yes. HMRC will not agree an instalment plan on a debt that has not been quantified, and a formal debt solution needs the real figures too. Filing the outstanding returns is what turns an unknown exposure into a number you can then deal with.

A tax debt has more routes out than people expect, and the right one depends on the size of the debt and what you can afford. A specialist can file the outstanding returns to fix the real figure, negotiate a Time to Pay arrangement where the debt is payable, and point you to proper insolvency advice where it is not.