Introduction: Time to Pay Is the Cheapest Way to Owe HMRC Money
A time to pay arrangement lets you settle a UK tax bill in monthly instalments instead of one lump sum. HMRC agrees hundreds of thousands of them each year. Consequently, the arrangement is routine rather than exceptional, and asking for one carries no stigma whatsoever.
Wealthy clients reach this point far more often than people assume. Consider a deferred bonus paid in shares, a carried interest allocation, or a property sale completing after the payment date. Each produces a large liability without the cash to match. Furthermore, British payments on account can demand almost two years of tax on a single day.
At TaxYork we negotiate these arrangements for high-net-worth Americans in Britain, and we then repair the American side afterwards. That second half matters enormously. Spreading a British bill across twelve months quietly splits your foreign tax credit across two US tax years. Most people discover that only when the credit fails to arrive.
What a Time to Pay Arrangement Actually Is
HMRC has statutory discretion to accept payment by instalments where a taxpayer genuinely cannot pay on the due date. The arrangement is a contract, not a concession.
Time to Pay Is a Deferral, Not a Discount
Nothing is written off. You still owe the full liability, and interest continues to run throughout. Therefore, treat the arrangement as a financing decision rather than as relief.
The benefit lies elsewhere. An agreed arrangement suspends late payment penalties from the date you make contact, and it stops enforcement action entirely. Accordingly, the saving comes from penalties avoided, not from tax forgiven.
Who Can Set One Up Online
GOV.UK confirms that Self Assessment taxpayers can arrange a plan themselves through their online account. Four conditions apply together. Your returns must be up to date and you must owe £30,000 or less. Additionally, you must have no other tax debts and no other HMRC payment plan running.
One further condition catches people out. You must act within 60 days of the payment deadline, and the plan must clear the debt within twelve months. Miss that window and the online route closes.
Bespoke Arrangements Above £30,000
Most of our clients owe considerably more than £30,000. Consequently, the online service is unavailable to them, and the arrangement must be negotiated by telephone with the Self Assessment payment helpline on 0300 200 3822.
Bespoke arrangements can run longer than twelve months where the circumstances justify it. However, HMRC expects a fuller picture in return, and it will test your figures rather than accept them.
The Two Penalty Regimes Running Side by Side in 2026
Britain currently operates two different late payment penalty systems at once. Which one applies to you depends on whether you have entered Making Tax Digital.
The Established Regime for Ordinary Self Assessment
Under the long-standing rules, HMRC charges 5% of the unpaid balancing payment at 30 days, a further 5% at six months, and another 5% at twelve months. Fifteen per cent therefore sits on the table before the year is out.
Notably, these penalties attach to the balancing payment alone. Payments on account escape them, although interest still applies. That distinction saves clients real money and almost no article mentions it.
The Schedule 26 Regime for Making Tax Digital Filers
Making Tax Digital for Income Tax became mandatory from 6 April 2026 for qualifying income above £50,000. Those taxpayers moved onto the penalty rules in Schedule 26 to the Finance Act 2021.
That regime behaves very differently. HMRC guidance sets no penalty within 15 days, 3% of the outstanding tax at day 15, a further 3% at day 30, and then 10% per annum charged daily from day 31. Moreover, both fixed percentages rise to 4% for the 2027 to 2028 tax year.
Why the Date You Telephone Matters More Than the Date You Pay
Here is the practical lever. Penalties pause from the date you contact HMRC about an arrangement, not from the date the arrangement is finally agreed. Consequently, a telephone call on day 14 can be worth several thousand pounds.
Ring first and negotiate afterwards. We tell every client the same thing, because the sequence genuinely changes the number.
Interest at 7.75%, and Why the IRS Gives You Nothing For It
The Current Rate and How It Is Set
HMRC late payment interest has run at 7.75% since 9 January 2026, as the published rates confirm. The formula is the Bank of England base rate plus four percentage points, widened from 2.5 points on 6 April 2025.
Repayment interest, by contrast, runs at only 2.75%. That five-point spread is deliberate, and it makes overpaying HMRC an expensive way to hold cash.
Interest Is Not Tax, So It Earns No Credit
This point costs clients thousands. A foreign tax credit relieves foreign income tax, and HMRC late payment interest is not income tax. Therefore, none of it reaches Form 1116, and none of it reduces your American bill.
Nor is it deductible as investment interest for a personal liability. Consequently, every pound of interest is a genuine after-tax cost, unlike the underlying tax itself.
Comparing the Cost With Commercial Borrowing
Run the comparison honestly. At 7.75% with no arrangement fee and no credit check, a time to pay arrangement often beats an unsecured facility outright. Furthermore, HMRC takes no security over your home or your portfolio.
An offset mortgage or a securities-backed line may still price lower. Where it does, borrowing to pay HMRC in full can be the better answer, and it removes the penalty risk completely.
The Foreign Tax Credit Timing Problem Nobody Warns You About
The Cash Basis Splits Your Credit Across Two US Years
American taxpayers claim foreign tax credits on the cash basis by default. You credit the tax in the calendar year you actually pay it, as Publication 514 explains.
Now apply that to instalments. A plan agreed in late January runs to the following January, so eleven payments fall in one calendar year and one falls in the next. Consequently, a slice of your British tax lands on a US return covering a completely different year of income.
Why the Split Hurts Wealthy Clients Specifically
The stranded slice is rarely usable. Credits sit in baskets, and a passive or general basket credit needs matching foreign income in that same year to absorb it. Where the following year brings lower foreign income, the credit simply carries forward and may never be used.
Additionally, the carryforward runs for ten years and the carryback for one. That sounds generous, yet it helps nobody whose British tax is already exceeding their American liability every year.
The Section 905(a) Accrual Election and Its Price
Section 905 permits an election to claim credits when foreign tax accrues rather than when you pay it. Under that election, the whole British liability attaches to the year it relates to, and instalments become irrelevant to the credit.
The election is powerful, and it is irrevocable. Once made, it binds every future year, and the transition year requires careful handling. Therefore, we model it before recommending it, particularly for clients who may leave Britain within a few years.
Payments on Account Make the Bunching Worse
Britain's payments on account system demands two instalments toward next year's liability, each 50% of the last one. A January payment date therefore carries a balancing payment plus a payment on account together.
The effect on the credit is severe. Almost two years of British tax can be paid inside one American calendar year, and the excess strands. Our note on payments on account and the HMRC bill Americans forget sets out the arithmetic in full.
What HMRC Asks For, and What to Say
The Income and Expenditure Review
For a bespoke arrangement HMRC conducts an income and expenditure review. Expect questions on salary, bonuses, rental income, dividends, household outgoings and existing credit commitments.
Answer precisely and support the figures. HMRC officers reject vague proposals routinely, whereas a documented monthly surplus usually secures agreement on the first call.
Assets, Savings and the Question About Selling
HMRC will ask why you cannot realise an asset instead. A locked-up carried interest allocation, unvested shares or an illiquid property genuinely cannot be sold, and saying so clearly is entirely legitimate.
By contrast, a large accessible deposit undermines the request. Consequently, prepare an honest explanation of what is actually available before the call rather than during it.
What Disqualifies You Immediately
Unfiled returns end the conversation. HMRC will not agree an arrangement while it cannot quantify the debt, so file first and negotiate second. Similarly, a previously broken arrangement makes agreement much harder.
Where several years remain outstanding, our catch-up filing team brings both countries current before we approach HMRC at all.
Practical Obstacles for Americans in Britain
Direct Debit From a Non-UK Bank Account
HMRC collects instalments by direct debit from a UK account. American clients who bank exclusively in dollars therefore need a sterling account in place before the plan starts.
Plan for that early. A failed first collection can cancel the arrangement outright, and reinstating it is far harder than agreeing it was.
The Address Problem If You Have Left Britain
Correspondence goes to the address HMRC holds. Clients who move to New York and forget to update it miss cancellation notices entirely, then discover enforcement has begun. Our note on HMRC direct recovery of debts explains what follows.
Update your details in your personal tax account, and keep a UK correspondence address if you can.
Currency Movement Across Twelve Instalments
A dollar-funded taxpayer carries exchange rate risk for the whole plan. Sterling strengthening by five cents over a year adds real cost to every remaining instalment.
Furthermore, each conversion is a separate transaction for American purposes. Convert your instalments at the IRS yearly average rate or at spot rates consistently, and keep the evidence.
Planning Ahead: Budget Payment Plans and the US Estimated Tax Trap
The Budget Payment Plan Almost Nobody Uses
HMRC offers a second, entirely separate facility for taxpayers who are already up to date. A Budget Payment Plan collects weekly or monthly direct debits toward a future Self Assessment bill, and you set the amount yourself.
The contrast with a time to pay arrangement is complete. One is prospective and voluntary, the other reactive and negotiated. Furthermore, you can pause a Budget Payment Plan for up to six months without penalty, which suits clients whose income arrives in a single bonus month.
Why a British Cash Squeeze Creates an American Penalty
Here is the trap we see most often. A client under pressure in Britain quietly skips a US quarterly instalment to fund the HMRC direct debit. That decision is expensive.
Section 6654 imposes an addition to tax for underpaid estimated taxes, and it carries no reasonable-cause defence. Unlike most American penalties, you cannot argue your way out of it afterwards. Additionally, the automatic 15 June expatriate filing extension does not move a single instalment date.
Sequencing the Two Countries Correctly
The sequencing rule follows directly. Once a time to pay arrangement is agreed, your British penalties are suspended, whereas your American instalment obligations continue untouched.
Therefore, fund the US quarterly payments first and let the agreed British instalments run their course. Reversing that order buys nothing in Britain and costs real money in America.
What Happens If the Arrangement Breaks
Cancellation and Immediate Enforcement
Miss an instalment and HMRC can cancel the plan. The full balance then becomes payable at once, and suspended penalties revive from the original due date rather than from the cancellation.
Contact HMRC before the missed payment wherever possible. A varied arrangement remains an arrangement, whereas a broken one rarely gets replaced.
The Collection Powers Behind the Conversation
HMRC holds substantial powers once an arrangement fails. Those include taking control of goods, attachment of earnings through your employer, county court proceedings and direct recovery from bank accounts under the debt management rules.
Notably, direct recovery excludes non-sterling accounts, so an American client's dollar account sits outside it. That protection is narrower than it sounds, because a UK salary does not.
A Worked Case Study: A £249,000 January and a Cash-Flow Gap
An American hedge fund analyst in London came to us on 22 January 2026. His 2024/25 Self Assessment showed a balancing payment of £142,000, and his first payment on account added £107,000.
The Position We Found
He owed £249,000 on 31 January 2026 and held roughly £60,000 in accessible cash. Most of his compensation sat in deferred fund units that could not be sold for two years. Consequently, an asset sale was genuinely impossible rather than merely inconvenient.
Because the debt exceeded £30,000, no online plan was available. We therefore telephoned the payment helpline on 26 January, five days before the deadline.
What the Arrangement Achieved
HMRC agreed twelve monthly instalments of £20,750, running from February 2026 to January 2027. Interest at 7.75% on the reducing balance cost approximately £10,450 across the year.
The penalties avoided dwarfed that figure. Late payment penalties of 5% would have struck the £142,000 balancing payment at 30 days and again at six months, costing £7,100 on each occasion. Contacting HMRC before the deadline therefore saved £14,200 within six months, and £21,300 within a year.
The American Consequence We Then Fixed
Eleven instalments totalling £228,250 fell in calendar year 2026. The final £20,750, or 8.3% of the liability, fell in January 2027. On the cash basis that slice belonged to his 2027 Form 1116, a year in which his British income was far lower.
We modelled the section 905(a) accrual election and made it for 2026. As a long-term British resident with recurring UK tax, he benefits from matching credits to the year the liability accrues. Consequently, the split disappeared, and the £10,450 of interest remained the only genuinely irrecoverable cost.
How TaxYork Can Help
We handle both halves of this problem in one engagement. Our team negotiates the arrangement with HMRC, prepares the supporting income and expenditure position, and then rebuilds your American filings so the credit lands where it should.
Furthermore, we prepare US tax returns for Americans abroad alongside Self Assessment, which means the timing decisions get made once rather than twice. Clients with stranded credits should speak to our treaty and foreign tax credit specialists, while those facing a liquidity event can plan the payment profile in advance with our cross-border planning team.
Conclusion
A time to pay arrangement is a sensible, ordinary response to a cash-flow gap, and HMRC treats it as such. Interest at 7.75% is the price, and penalties avoided are the prize.
Americans carry an extra layer. Instalments that cross a calendar year split your foreign tax credit, and the section 905(a) election is the only reliable repair. Ultimately, ring HMRC early, file everything first, and settle the American timing before the plan begins rather than after it ends.
Contact Us
Facing a bill you cannot pay in full? Email hello@taxyork.com or call 020 3488 8606, or book a consultation and we will review the arrangement and the credit position together.
Disclaimer
This article provides general information only and does not constitute tax advice. Tax rules and interest rates change frequently, and their application depends on individual circumstances. You should obtain professional advice tailored to your position before acting. TaxYork accepts no liability for any action taken in reliance on this article. Further guidance is available from ICAEW, the Chartered Institute of Taxation, the AICPA and MoneyHelper, together with the IRS overview of the foreign tax credit and the GOV.UK guide for those who cannot pay a tax bill on time.