Employer PAYE debt deferrals climb past £7bn

The value of employer PAYE debt deferred through HMRC’s Time to Pay arrangements has increased by almost 70% in two years, despite little change in the number of new payment plans being agreed.

Freedom of Information data obtained by payroll and HR provider PayFit shows HMRC agreed 221,207 new Time to Pay arrangements covering £7.136bn of PAYE debt during the 2025/26 financial year.

That compares with 217,925 arrangements worth £4.259bn in 2023/24. While the number of arrangements increased by only 1.5%, the value of debt covered rose by about 67.5%.

The average value of each arrangement consequently increased from £19,543 to £32,260 — a rise of more than £12,700, or just over 65%.

Time to Pay allows taxpayers that cannot meet a liability by the normal deadline to agree an instalment schedule with HMRC. Employer PAYE debts can be included alongside other tax liabilities, subject to HMRC’s eligibility requirements and its assessment of the taxpayer’s ability to repay.

The FOI figures do not establish why individual PAYE debts have become larger, although they show that employers entering new arrangements are, on average, deferring substantially more money than they were two years earlier.

Firmin Zocchetto, chief executive and co-founder of PayFit, said: “Time to Pay has always been an important safety net for businesses facing temporary financial pressure. But what these new figures suggest is that the challenge is becoming less about the number of employers needing support and more about the size of the liabilities they’re carrying when they reach that point.”

Payroll liabilities sit unusually close to day-to-day cash flow. Employers collect income tax and employee National Insurance through payroll while also funding their own National Insurance obligations, before passing amounts due to HMRC on a regular timetable.

A growing payroll debt can therefore coincide with a wider cash-management problem rather than an isolated tax issue. A company can remain profitable on an annual basis while experiencing pressure when customer receipts, stock purchases, wages and payroll tax deadlines fall at different points in the working-capital cycle.

The cost of employment has also increased. The standard employer National Insurance rate is 15% for 2026/27 on earnings above the relevant secondary threshold, leaving payroll as a larger recurring cash commitment alongside wages, pensions and benefits.

Zocchetto also pointed to the administrative complexity surrounding payroll, including PAYE, National Insurance, real-time reporting and regulatory change. Complexity alone does not explain the increase in deferred debt, although errors, weak forecasting or delayed reconciliation can make existing cash pressure harder to identify early.

Payroll systems are also facing further change. HMRC has revised the timetable for mandatory real-time payrolling of benefits in kind, with implementation now being phased from April 2027 and April 2028.

The transition will bring more taxable benefits into payroll infrastructure and increase the need for accurate information to move between HR, reward, finance and payroll systems. Employers with company cars, medical benefits, multiple payrolls or complex employee populations may face substantially more preparation than organisations with simpler arrangements.

Finance and payroll governance increasingly overlap as a result. A payroll team can calculate liabilities accurately but still encounter problems if cash forecasts do not reflect when those liabilities fall due. Equally, a finance team can have sufficient liquidity in aggregate while missing reconciliation errors inside payroll information.

PayFit recommends reviewing PAYE and National Insurance liabilities ahead of deadlines, reconciling payroll information against finance forecasts and ensuring Real Time Information submissions align with HMRC payment records.

Zocchetto said: “To help employers avoid debts escalating to the point where emergency payment arrangements become necessary, my advice is to consider practical steps such as reviewing PAYE and National Insurance liabilities ahead of payment deadlines, reconciling payroll data with finance forecasts, ensuring Real Time Information (RTI) submissions align with HMRC payment records, and engaging with HMRC as early as possible if a payment may be missed.”

HMRC’s Time to Pay framework is designed to preserve tax collection while allowing viable taxpayers to spread debt they cannot immediately settle. An arrangement is not a write-off: the underlying liability remains due and repayment terms have to be maintained.

The increase in average PAYE debt entering those arrangements adds another measure of pressure beneath headline business conditions. Insolvency statistics, payment delays and confidence surveys each capture different parts of the economy, whereas Time to Pay records a specific point at which a tax liability has exceeded the cash immediately available to settle it.

The relatively stable number of arrangements makes the rise in their average value particularly notable. The latest figures do not show a large increase in employers entering Time to Pay; instead, they show substantially larger liabilities among those that do.

Payroll obligations are predictable in timetable even when the underlying wage bill varies. Linking payroll forecasts, tax liabilities and working-capital planning can expose a likely shortfall earlier, before a missed payment develops into a substantially larger deferred balance.