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If Time-To-Pay appeared on your credit file, would you still take it?

HMRC Interest Rates Are Rising in 2025

As of April 6, 2025, HMRC will be increasing its late payment interest rate for many people utilising the Time-To-Pay scheme to 8.75%, following changes in the Bank of England’s base rate (source). This represents an unnecessary financial burden for businesses, as the 8.75% interest charged by HMRC offers no added value in return. Unlike a loan – where interest payments support credit building, working capital, and qualify as a deductible business expense – HMRC’s interest is purely a penalty for arrears. It signals red-flag cash flow issues to lenders without delivering the financial benefits businesses might assume.

 

This rate hike reinforces the value of exploring tax funding options. Structured tax loans often come with competitive interest rates that are tax-deductible, reducing the real cost of borrowing. Unlike TTP, tax loans not only offer financial flexibility but also help maintain and in some cases increase your business’s credit health. 

The Tax Deduction Advantage

One key reason to consider tax funding options is the tax-deductible nature of interest payments on business loans. For example, with a nominal interest rate of 11.67% (assuming a 25% corporate tax rate), the effective interest rate after tax deductions is just 8.75%.

 

Similarly, with a nominal interest rate of 10.8% (assuming a 19% corporate tax rate), the effective interest rate after tax deductions remains 8.75%. This significantly reduces the real cost of borrowing, making tax loans an often more cost-effective tool for managing cash flow while maintaining credit-health. 

11.67% interest (25% tax rate) = 8.75% effective cost.

 

10.8% interest (19% tax rate) = 8.75% effective cost.

Why HMRC Time to Pay (TTP) Is a Red Flag for Credit Underwriters

While TTP isn’t officially recorded as a credit event, lenders scrutinise financial records thoroughly, and the red flags associated with TTP can severely impact your business’s financial standing and ability to obtain credit – especially low-cost credit. 

1. It's Technically Tax Arrears

Entering a TTP arrangement means admitting you can’t meet your tax obligations on time. Most credit underwriters view this as a sign of cash flow distress, categorising it as tax arrears, which signals financial instability. 

2. Restricts Access to Other Finance

Lenders perceive businesses with TTP plans as high-risk. This can lead to loan rejections, reduced credit limits, or unfavorable terms for business loans, invoice financing, asset finance, commercial mortgages, and most other forms of business financing.

3. Your HMRC Debt Isn’t Invisible

Even if not listed on your credit report, TTP arrangements are visible during due diligence processes. Lenders often request financial statements, VAT returns, corporation tax records, screenshots of your HMRC tax portals, and bank statements, all of which can reveal regular payments to HMRC under a TTP plan. This can deter lenders, and in some cases make lenders rescind accepted offers.

4. No Credit Building Benefits 

Unlike structured tax loans that can demonstrate responsible financial management, TTP plans do not contribute positively to your credit profile. They simply extend an overdue liability without enhancing your borrowing power.

Why a Tax Loan Is the Smarter Choice

Scalable & Flexible: Spread payments over 3, 6, or 12 months, aligned with your cash flow cycles. As your business grows, so does your ability to obtain more credit as a growth tool.

 

Preserves Creditworthiness: Avoid the “tax arrears” label and maintain access to broader financing options. 

 

Low-Cost Financing: Competitive interest rates make tax loans an affordable working capital management tool, especially when considering tax deductions. 

 

No HMRC Scrutiny: Manage your tax obligations discreetly, without triggering red flags during lender assessments. 

Strengthen Cash Flow, Avoid Arrears, Secure Growth

While a TTP arrangement may seem convenient in the short term, it can have lasting negative effects on your business’s financial health and growth potential. In contrast, a tax loan offers a strategic, scalable, and cost-effective solution that not only preserves your creditworthiness but also optimizes your cash flow. 

 

 

If you’re facing a tax bill and want to avoid arrears while keeping your business financially strong, speak to us today about our tailored tax loan solutions. 

 

Protect your growth potential—don’t let tax arrears hold your business back. 

 

About the Author

Curtis Bull
Curtis Bull

Co-Owner of Finspire Finance
0161 791 4603
Curtis@FinspireFinance.co.uk

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