Can't pay HMRC? Your company's options

What happens if my company cannot pay HMRC?

If your company cannot pay HMRC, the tax owed does not disappear: HMRC expects you to make contact and may agree a Time to Pay arrangement to spread VAT, PAYE or corporation tax arrears over an agreed period, but if the debt is ignored it escalates through enforcement to a winding-up petition. Talking to HMRC early is what keeps the options open.

Unpaid tax is the most common trigger of company insolvency, and HMRC is often a company's largest creditor. The three taxes that most often fall behind are VAT, PAYE with National Insurance, and corporation tax, and the route back depends on whether the company can pay over time or cannot recover at all. Where it can pay over time, a Time to Pay arrangement or wider rescue is the answer; where it cannot, a formal insolvency procedure is.

Will HMRC give my company time to pay?

HMRC may give your company time to pay through a Time to Pay arrangement, an agreement to clear tax arrears by monthly instalments over an agreed period where HMRC accepts the company can realistically afford it. It is not automatic, and HMRC will want to understand why the company fell behind and how it will catch up.

A Time to Pay arrangement is more likely to be agreed where the company engages early, has a credible plan and keeps its future filings and payments up to date. Interest accrues on the outstanding tax while the arrangement runs, and the arrangement covers the specific debt agreed, not future liabilities that must still be paid on time.

How do I request an HMRC Time to Pay arrangement?

You request an HMRC Time to Pay arrangement by contacting HMRC before the debt is passed for enforcement, either through the Business Payment Support Service by phone or, for some smaller debts, through a self-serve option online. HMRC will ask about the company's income, outgoings and why it cannot pay in full now.

It helps to have the following ready before you call.

• The tax reference and amount. Which tax is owed, how much, and for which period.
• Why the company cannot pay. A short, honest explanation of what caused the shortfall.
• What the company can afford. A realistic monthly figure supported by income and expenditure.
• Up-to-date filings. Returns filed and future obligations accounted for, which HMRC expects as a condition.

How long does an HMRC Time to Pay arrangement last, and can I pay in instalments?

An HMRC Time to Pay arrangement usually spreads the arrears over up to around 12 months in monthly instalments, though HMRC can agree a longer period for larger debts where the company can show it is affordable. It is, by design, a way to pay HMRC in instalments rather than in a single lump sum. Treat the 12-month figure as a common outcome, not a fixed entitlement.

The instalments are set to clear the debt within the agreed term, interest is added to the outstanding balance while it runs, and the company must keep paying its ongoing taxes on time alongside the arrangement. Missing an instalment, or missing a new tax payment, can bring the whole arrangement to an end.

What happens if HMRC refuses Time to Pay or the arrangement defaults?

If HMRC refuses a Time to Pay arrangement or an agreed arrangement defaults, HMRC resumes collection of the full outstanding debt and moves towards enforcement, and a defaulted arrangement is harder to renegotiate than the first request. At that point the company is back to owing the whole sum, now with less goodwill.

A refusal or default is usually a sign that the company cannot service the debt on realistic terms, which means the real question has changed from how to pay HMRC to whether the company is insolvent. That is the point to take insolvency advice, because acting before HMRC escalates protects both the company and the directors.

How does HMRC enforce an unpaid tax debt?

HMRC enforces an unpaid tax debt through a series of escalating steps, beginning with reminders and debt collection, then enforcement by taking control of goods, and ending, if the debt is still unpaid, with a winding-up petition to close the company through the court. Each stage is more serious and harder to reverse than the last.

The enforcement ladder a company can face is as follows.

• Debt collection. HMRC or an agency chases the debt directly and adds pressure to pay.
• Enforcement by taking control of goods. An enforcement agent can seize company assets to sell towards the debt, a step once known as distraint.
• A County Court Judgment or statutory demand. A formal demand for the debt that can precede court action.
• A winding-up petition. As a last resort HMRC can petition the court to wind the company up. If a petition arrives, read our guide to the winding-up petition and take advice the same day, because it is time-critical.

What are my options if the company cannot pay HMRC even over time?

If the company cannot clear its HMRC arrears even over time, the position is one of insolvency, and the options are the formal procedures that either rescue a viable business or close an unviable one: a company voluntary arrangement, administration, or a creditors' voluntary liquidation. Which fits depends on whether the underlying business can pay its way in future.

The three routes work like this.

• A company voluntary arrangement. A viable company can propose to repay an affordable portion of its debts over roughly three to five years, approved by 75% of creditors by value, and keep trading. HMRC votes on the proposal as a creditor.
• Administration. A moratorium protects the company from creditor action, including HMRC, while the business is rescued or sold as a going concern. See the wider company rescue options.
• A creditors' voluntary liquidation. Where there is no viable future, the directors close the company in an orderly way and a liquidator deals with HMRC and the other creditors.

Why choose NTF when your company owes HMRC?

NTF Corporate Solutions is a boutique insolvency practice whose advice on HMRC arrears comes from named practitioners, James Kaye and Nick Morgan, who are licensed by the Institute of Chartered Accountants in England and Wales and act under the Insolvency Act 1986. You speak to an experienced, named practitioner directly, and we can move quickly when HMRC is applying pressure.

We have helped directors under HMRC pressure since 2009, we explain plainly whether a Time to Pay arrangement, a rescue or a liquidation is the realistic answer, and the first conversation is free, confidential and without obligation. The sooner you call, the more room there is to act before HMRC escalates.