HMRC debt advice can be vital if your limited company is falling behind with VAT, PAYE, Corporation Tax or other tax liabilities. At DCA Business Recovery, we help company directors understand their options clearly, confidentially and without unnecessary pressure.

If HMRC is chasing your limited company for unpaid VAT, PAYE, Corporation Tax or other tax arrears, it can feel like the pressure is closing in quickly.

You may be receiving letters, calls, payment demands, threats of enforcement action or warnings about further recovery steps. In many cases, directors know the company is struggling but are unsure whether the business can recover, whether HMRC will agree time to pay, or whether liquidation now needs to be considered.

At DCA Business Recovery, we give clear, practical advice to company directors dealing with HMRC debt. We will talk through your position, explain your options and help you understand what you should and should not do next.

Getting early HMRC debt advice can help you avoid making the position worse.

HMRC Debt Advice for Limited Company Directors

If your limited company cannot pay HMRC, is falling behind with VAT, PAYE or Corporation Tax, or HMRC is already chasing payment, it is important to understand your options early.

HMRC arrears are often a sign that cash flow has become difficult and the company may need either a realistic repayment solution or formal insolvency advice.

At DCA Business Recovery, we help company directors understand whether the business can recover, whether a Time to Pay arrangement may be realistic, or whether options such as a Creditors’ Voluntary Liquidation should now be considered.

You do not need to know the answer before speaking to us.

Call DCA Business Recovery on 01702 344558 for a free, confidential, no-pressure conversation.

Book a confidential conversation with DCA Business Recovery online.

My company cannot pay HMRC – what should I do?

If your company cannot pay HMRC, do not simply ignore the arrears and hope the position improves.

First, establish the full position.

You should understand:

• how much is owed to HMRC;
• which taxes are overdue;
• whether new VAT, PAYE or Corporation Tax liabilities are still building up;
• whether suppliers, employees or lenders are also unpaid;
• whether the company is profitable before debt repayments;
• whether it can pay future tax as it falls due; and
• whether the business has a realistic prospect of recovery.

Once the financial position is clear, you can consider the available options.

These may include:

• paying HMRC in full;
• agreeing a Time to Pay arrangement;
• restructuring or refinancing;
• a Company Voluntary Arrangement;
• another business rescue option; or
• placing an insolvent company into liquidation.

The right answer depends on the company’s circumstances.

What HMRC debts can a company fall behind with?

Companies may contact us because they are struggling with:

• VAT;
• PAYE;
• National Insurance contributions;
• Corporation Tax;
• Construction Industry Scheme liabilities;
• penalties and interest; or
• several different HMRC debts at the same time.

It is common for one missed tax payment to become several arrears over time, particularly where the company is using money set aside for tax to meet wages, suppliers or other immediate costs.

If this is happening regularly, the underlying cash-flow problem needs to be addressed rather than simply moving from one missed payment to the next.

Can my company get an HMRC Time to Pay arrangement?

Possibly.

A Time to Pay arrangement is a payment plan that allows overdue tax to be repaid by instalments.

HMRC will consider the company’s financial position and whether the proposed payments are realistic and affordable.

You should expect HMRC to want information about the company’s income, spending, assets, other debts and proposed repayments.

Read HMRC’s guidance on paying tax by instalments.

A Time to Pay arrangement can be useful where the underlying business remains viable and the company can:

• make the agreed repayments;
• continue paying new tax liabilities on time; and
• meet its normal trading costs.

When might Time to Pay not be enough?

A payment plan does not solve every HMRC debt problem.

It may not be appropriate where:

• the company cannot meet ordinary trading costs;
• new HMRC debt continues to arise;
• the company cannot afford the proposed instalments;
• previous payment arrangements have failed;
• the business has no realistic prospect of returning to sustainable trading; or
• the company is insolvent and its financial position is continuing to deteriorate.

Agreeing a payment plan that the company cannot realistically maintain may simply delay the point at which more formal action is needed.

The important question is therefore not just:

“Will HMRC give us more time?”

It is:

“Can the company genuinely afford to recover?”

What happens if I ignore HMRC debt?

Ignoring HMRC normally makes the position more difficult.

HMRC may take recovery action where tax remains unpaid.

Depending on the circumstances, this can include:

• contacting the company for payment;
• using debt collection agencies;
• enforcement action against company assets;
• court proceedings; or
• ultimately seeking to wind up the company.

HMRC’s current guidance says that where a taxpayer does not engage or cannot agree a payment plan, it may use debt enforcement powers and, for business tax debts, can take steps that may result in the company being closed down.

Read HMRC guidance on what can happen if tax is not paid.

If you are already receiving increasingly serious correspondence from HMRC, take advice rather than allowing deadlines to pass.

Can HMRC issue a winding-up petition?

HMRC is a creditor and can seek to wind up a company that cannot pay its debts.

A winding-up petition is a court application seeking the compulsory liquidation of a company.

It is a serious stage of creditor action.

If a winding-up order is eventually made, the company will enter compulsory liquidation and control of the process will no longer remain with the directors.

If HMRC has threatened or presented a winding-up petition, take advice urgently.

Received a winding-up threat or petition from HMRC? Call DCA Business Recovery on 01702 344558.

Can I liquidate a company that owes HMRC?

Yes.

Owing money to HMRC does not prevent an insolvent company from entering a Creditors’ Voluntary Liquidation (CVL).

HMRC would normally be dealt with as a creditor in the liquidation along with other company creditors.

A CVL may be appropriate where the company:

• cannot pay its debts;
• has no realistic prospect of recovery;
• is continuing to build up HMRC arrears;
• is under pressure from creditors;
• cannot maintain a Time to Pay arrangement; or
• needs to stop trading and close through a formal insolvency process.

Liquidation is not automatically the right answer simply because HMRC is owed money.

However, where the company is insolvent and cannot recover, it may be better to consider the issue early rather than allow liabilities to continue increasing.

Read our guide to Creditors’ Voluntary Liquidation.

What happens to HMRC debt in a CVL?

Once a company enters a Creditors’ Voluntary Liquidation, its debts are dealt with through the formal insolvency process.

HMRC submits its claim in the liquidation like other creditors.

The liquidator takes control of the company’s affairs, realises available assets and deals with creditor claims in accordance with insolvency law.

The fact that HMRC may not ultimately receive full payment from the company does not automatically make the director personally responsible for the unpaid balance.

Director liability is a separate issue and depends on the circumstances.

Will I personally have to pay my company’s HMRC debt?

Usually, the starting point is that a limited company is a separate legal entity and its tax debts belong to the company.

A director does not automatically become personally liable simply because the company owes VAT, PAYE or Corporation Tax.

However, there are specific circumstances in which directors or others connected with a company can face personal exposure.

These can include certain cases involving:

• tax avoidance or tax evasion;
• repeated insolvency and non-payment of tax;
• penalties connected with particular conduct;
• personal guarantees relating to other company borrowing;
• overdrawn director’s loan accounts; or
• other issues identified during an insolvency investigation.

HMRC can, in defined circumstances, issue a joint and several liability notice making an individual personally liable for particular company tax debts.

These rules are not triggered merely because a company has failed.

If you are concerned about personal liability, obtain advice based on your specific circumstances rather than assuming you will personally inherit all of the company’s HMRC debt.

Read the Government guidance on HMRC joint and several liability notices.

Can HMRC chase me personally after liquidation?

HMRC does not automatically transfer the company’s unpaid tax bill to a director when the company goes into liquidation.

However, HMRC has specific powers in certain circumstances to pursue individuals connected with companies.

For example, joint and several liability rules may apply in defined cases involving repeated insolvency and non-payment, tax avoidance or tax evasion.

There may also be separate personal issues such as an overdrawn director’s loan account.

If you are worried about your own position, it is worth obtaining advice before liquidation rather than waiting until afterwards.

Read our guide to overdrawn director’s loan accounts in liquidation.

What happens if my company cannot pay VAT?

If your company cannot pay VAT when it falls due, this may indicate short-term cash-flow pressure or a wider insolvency problem.

Look beyond the individual VAT bill.

Consider:

• how much VAT is currently overdue;
• whether another VAT quarter will soon become payable;
• whether PAYE or Corporation Tax is also outstanding;
• whether suppliers are being paid;
• whether staff wages can be met;
• whether the business remains profitable; and
• whether the company can realistically catch up.

If the company has a temporary problem but remains viable, a Time to Pay arrangement may be worth discussing with HMRC.

If the company is repeatedly unable to meet VAT liabilities as they arise, more fundamental restructuring or insolvency advice may be required.

What happens if my company cannot pay PAYE?

Falling behind with PAYE and National Insurance can also be a significant warning sign.

PAYE arrears often arise where a company is using cash intended for HMRC to meet wages and other urgent business costs.

The key question is whether this is a one-off problem or part of an ongoing inability to meet the company’s liabilities.

If the business cannot pay both current PAYE and historic arrears, directors should review the financial position urgently.

What if my company cannot pay Corporation Tax?

A Corporation Tax liability may become difficult to pay where the company has used available cash for other business costs.

If the company cannot pay the bill in full, you may be able to approach HMRC about a payment plan.

However, you should also look at the wider financial position.

A company that cannot pay Corporation Tax but otherwise has strong cash flow may have a very different problem from a company that is simultaneously behind with PAYE, VAT, suppliers, finance and wages.

What if HMRC has refused a Time to Pay arrangement?

HMRC is not required to agree every proposal.

If HMRC refuses a payment arrangement, consider why.

It may be because the proposed payments are not considered affordable or realistic, because HMRC expects the debt to be reduced more quickly, or because the overall position raises concerns.

At that stage, directors should avoid simply making repeated proposals without addressing the underlying financial problem.

You may need to consider:

• whether more funding is available;
• whether costs can genuinely be reduced;
• whether a restructuring is viable;
• whether a CVA may be appropriate; or
• whether liquidation should now be considered.

What happens if a Time to Pay arrangement fails?

If the company misses an agreed payment, contact HMRC rather than ignoring the default.

HMRC’s guidance states that it may discuss changing or renegotiating a payment plan where circumstances change.

However, repeated defaults can be a sign that the plan is not sustainable.

If the company cannot maintain the arrangement and continue paying new tax liabilities, directors should reconsider whether continued trading remains realistic.

Can HMRC object to my company being struck off?

Yes.

A creditor can object to a company being struck off where money remains owed.

HMRC’s own internal guidance confirms that it may object to striking off where there is an outstanding tax liability.

A company applying for voluntary strike-off must also deal properly with its creditors and outstanding tax affairs.

Strike-off is therefore generally not an appropriate way to avoid unpaid HMRC debt.

If HMRC has objected to your strike-off application, establish why and deal with the underlying issue.

This may involve:

• filing missing returns;
• confirming the tax balance;
• paying an outstanding liability;
• resolving another HMRC query; or
• considering insolvency if the company cannot pay its debts.

Read more about strike-off objections.

Should I keep trading if my company owes HMRC?

Simply owing HMRC money does not automatically mean a company must stop trading.

The important issue is the company’s overall financial position and its prospects.

Directors should consider whether the company can:

• meet ongoing liabilities;
• avoid increasing creditor losses;
• trade profitably;
• maintain any agreed repayment plan; and
• realistically return to a sustainable position.

If you are unsure whether the company is insolvent or whether continuing to trade is appropriate, take advice promptly.

What should directors avoid doing when HMRC is chasing?

Financial pressure can lead to rushed decisions.

Before taking unusual action, directors should consider obtaining professional advice.

Particular care may be needed before:

• transferring company assets;
• selling company assets to directors or connected parties;
• making unusual payments to particular creditors;
• taking further borrowing where repayment is uncertain;
• withdrawing significant money from the company;
• attempting to strike off an insolvent company; or
• ignoring HMRC correspondence or court documents.

A future liquidator may review transactions that took place before liquidation.

Obtaining advice early can help directors understand their duties and make better-informed decisions.

How DCA Business Recovery can help with HMRC debt

DCA Business Recovery is an independent, family-run insolvency practice based in Southend-on-Sea, Essex.

We advise company directors throughout Essex, London and the wider UK.

If your company owes HMRC, we can help you understand:

• whether the business appears viable;
• whether Time to Pay may be realistic;
• whether the company may be insolvent;
• what a CVL would involve;
• how HMRC and other creditors would be dealt with;
• whether director’s loan accounts or other personal issues need to be considered; and
• what the practical next steps are.

We explain the position in plain English and will not pressure you into making a decision before you understand your options.

Speak to DCA Business Recovery about HMRC debt

If HMRC is chasing your company for VAT, PAYE, Corporation Tax or another liability, it is better to understand your options before the pressure becomes more serious.

You do not need to wait for a winding-up petition or enforcement action before seeking advice.

Call DCA Business Recovery on 01702 344558 for a confidential conversation.

Book a confidential, no-pressure conversation online.

Or contact DCA Business Recovery.

Frequently Asked Questions

Can HMRC refuse a Time to Pay arrangement?

Yes. A Time to Pay arrangement is not automatic. HMRC considers the company’s circumstances and whether the proposed payments are realistic and affordable.

Can I liquidate a company that owes HMRC?

Yes. An insolvent company can enter a Creditors’ Voluntary Liquidation even if it owes VAT, PAYE, Corporation Tax or other liabilities to HMRC.

Will HMRC debt become my personal debt?

Not automatically. A limited company’s tax debt usually belongs to the company. However, there are specific circumstances in which HMRC may seek personal liability from individuals, so directors with concerns should obtain advice about their own circumstances.

Can HMRC close my company?

HMRC can take recovery action for unpaid business tax and may ultimately petition to wind up a company that cannot pay its debts.

Can HMRC object to my company being struck off?

Yes. HMRC may object where there are outstanding liabilities or unresolved tax matters.

Should I keep trading if my company owes HMRC?

That depends on the company’s overall financial position. Owing HMRC does not automatically mean trading must stop, but directors should consider whether the company can pay ongoing debts and whether continued trading is worsening creditor losses.

What if I cannot afford my HMRC Time to Pay arrangement?

Contact HMRC promptly and review whether the payment plan remains realistic. If the company cannot maintain the arrangement while meeting new liabilities, insolvency or restructuring advice may be appropriate.

Is HMRC debt written off in liquidation?

The company’s unpaid HMRC claim is dealt with through the liquidation process. Any amount HMRC does not recover from the company does not automatically become a personal debt of the director.

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This page provides general information and is not intended to constitute legal or tax advice. The appropriate course of action depends on the circumstances of the company and its directors. Specific professional advice should be obtained before taking action.