A Client Has an HMRC Time to Pay Arrangement: How Could It Affect Property Finance?

The Client Situation

The issue may involve:

• Corporation Tax paid over an agreed period;
• VAT or PAYE arrears in a trading company;
• Self Assessment paid by instalments;
• a director whose company arrangement affects personal mortgage income;
• a property SPV with outstanding tax;
• a completed arrangement that remains recent;
• several tax types consolidated into one plan;
• a missed instalment being renegotiated;
• anticipated tax that is not yet overdue; or
• capital raising intended partly or wholly to clear HMRC.

The accountant knows whether the underlying business is viable, whether the liability was exceptional or recurring, and whether current tax is being reserved. Willow needs that analysis translated into facts a lender can verify without asking the accountant to make a credit decision.

What HMRC Says About Time to Pay

GOV.UK explains that an individual or company may be able to agree monthly instalments for overdue tax. HMRC can ask for income, expenditure, bank information, savings, investments, other taxes and company cash-flow details. For companies, it may expect assets to be realised and directors or others to provide funds, lending or extended credit where appropriate.

HMRC’s Debt Management and Banking Manual states that Time to Pay is allowed where the customer:

• cannot pay in full by the due date;
• has the means to make the agreed payments;
• can pay other liabilities arising during the arrangement; and
• uses a period that is as short as possible.

HMRC also says payment levels and duration depend on affordability, interest continues to affect total cost, and a client should make contact if circumstances change. Missing payments can result in renegotiation, escalation or enforcement depending on the facts.

This is not the same as a Budget Payment Plan for future Self Assessment. Identify precisely whether the client has overdue debt, a formal arrangement, voluntary advance payments, an informal proposal awaiting acceptance or enforcement activity.

Why Property Finance Underwriting Changes

A lender may see the arrangement as evidence about liquidity, financial control and future affordability. The relevance differs by application:

Some lenders will not accept active arrangements in particular products. Others may consider them where conduct and affordability are strong. The broker should establish policy before a credit search or valuation cost is incurred.

What a Lender Is Likely to Examine

The accountant should explain the numbers, not advocate that the lender ignore them. A concise chronology is often more useful than a long letter: liability due date, cause, HMRC contact, agreed terms, payment history, current balance, final payment date and current-tax status.

Evidence Pack for a Client With Time to Pay

Share only what the lender requires, with client authority and secure handling. Do not place tax references, bank details or sensitive documents into an informal enquiry form, ordinary WhatsApp message or unprotected email.

Model Three Cash-Flow Periods

A useful forecast separates:

1. During the arrangement: existing HMRC instalment, current tax, proposed mortgage, other debt and normal personal or business spending.
2. Immediately after settlement: cash released when the instalment stops, any higher mortgage cost and rebuilt reserves.
3. Downside period: lower revenue or rent, higher interest, delayed receipts and an unexpected tax adjustment.

For a company director, do not assess only personal drawings. Ask whether salary, dividends or retained profit used by the lender remain credible while the company services tax debt. A company may show accounting profit while lacking cash because customers paid late, working capital expanded or tax reserves were used elsewhere.

The forecast should include the next tax cycle. A plan that clears old Corporation Tax while a new liability immediately becomes overdue is not a sustainable resolution.

Could Property Finance Clear the Tax Liability?

Property-backed capital raising may be considered where the client has equity and a viable position after repayment. Possible routes include:

• further advance or remortgage of a residential property;
• buy-to-let portfolio refinancing;
• commercial mortgage capital release;
• second-charge finance where the first mortgage is worth preserving;
• short-term bridging with a credible refinance or sale exit; or
• sale of a non-core property instead of additional borrowing.

The comparison should show:

• gross and net proceeds after fees and redemptions;
• interest rate, term and total cost;
• monthly payment versus the HMRC instalment;
• security and repossession risk;
• early-repayment charges;
• tax or legal consequences of moving money between person and company;
• working capital remaining;
• whether all or only part of the liability is cleared; and
• how future tax is funded.

Replacing unsecured Crown debt with long-term property-secured debt changes the risk, term and cost. It should not be described simply as “saving cash flow.” The property can be at risk if repayments fail.

Where the company may be insolvent or unable to meet debts as they fall due, the directors need appropriate insolvency and legal advice. New secured borrowing should not be used to postpone an unavoidable failure or prefer creditors without advice.

Worked Example: Profitable Company, Temporary Cash Shock

A director owns a trading company that agreed a £120,000 Corporation Tax Time to Pay plan after a major customer paid six months late. The business has made six £10,000 monthly payments on time and owes £60,000. Current PAYE and VAT are up to date, management accounts show trading has normalised, and the next Corporation Tax liability is being reserved monthly.

The director wants a larger residential mortgage. The lender must decide whether company profit and director income remain sustainable while the arrangement continues. The accountant prepares a chronology, current balance, payment evidence, management accounts and forecast covering the arrangement, new mortgage and next tax bill.

Willow identifies lenders willing to consider active arrangements in the relevant director-income category and establishes whether the monthly £10,000 company commitment affects the income analysis. The application does not hide the debt or claim that late customer payment automatically excuses it.

If the payments had been missed, new VAT arrears were building or the forecast relied on another uncertain debtor receipt, the case would be materially weaker. The facts—not the label alone—drive the outcome.

Not Every HMRC Position Is the Same

Where the Professional Boundaries Sit

The accountant advises on the tax liability, returns, cash flow, current liabilities, accounts and payment feasibility. The client or authorised tax agent negotiates with HMRC. Insolvency practitioners and solicitors advise where distress, director duties or enforcement require specialist input.

Willow identifies lenders whose policy may fit the disclosed position, recommends suitable property finance and coordinates underwriting. The lender decides how the arrangement affects income, affordability and credit risk.

Willow does not negotiate Time to Pay, decide which tax should be paid first or advise that secured borrowing is an insolvency solution. The accountant should not promise mortgage acceptance because HMRC agreed instalments.

Common Mistakes to Avoid

• Calling overdue tax a budgeting plan: distinguish future payments from arrears.
• Omitting the arrangement: full, accurate disclosure is essential.
• Reporting only the monthly instalment: lenders also need balance and term.
• Ignoring the cause: recurring under-reserving differs from a one-off shock.
• Using old accounts alone: current performance and tax status matter.
• Forgetting future liabilities: the client must pay new tax as it arises.
• Assuming settlement deletes history: recency and cause may remain relevant.
• Making a speculative application: check policy before credit and valuation costs.
• Moving company debt to personal property casually: tax, legal and security effects differ.
• Using gross proceeds: deduct fees, existing loans and penalties.
• Borrowing without a post-loan forecast: the cash problem can repeat.
• Ignoring distress indicators: obtain insolvency advice where necessary.

When to Involve Willow

Refer the client when:

• a mortgage or refinance is planned during an active arrangement;
• a director’s company has tax arrears;
• lender income relies on profit retained in that company;
• capital raising may repay HMRC;
• the client has completed a recent plan;
• the arrangement has been varied or missed;
• several tax types or entities are involved;
• current accounts look profitable but cash is strained;
• the client wants to buy before the arrangement ends;
• a commercial facility is being renewed;
• the accountant wants lender policy checked anonymously; or
• the application needs a concise evidence-led chronology.

An anonymous outline should include borrower type, finance required, property, tax type, original and current balance, monthly payment, remaining term, cause, payment conduct, current-tax status, income, other debt and timing.