If you are unable to make a tax payment when it is due, whether it is VAT, late PAYE / NICs, corporation tax arrears or self-assessment income tax, you should contact HMRC as soon as possible. If you are genuinely unable to make the payment, you may be able to reach an agreement with HMRC to have more ‘Time to Pay’. This will usually take the form of a lump sum payment, with the remainder of the tax liability paid in instalments, usually over a period of up to about 12 months. HMRC sets no statutory maximum term, and it agrees a longer plan only by exception. The earlier you contact HMRC, the greater the likelihood of a Time to Pay arrangement being made. Leave the tax unpaid without agreeing Time to Pay and you will enter the murky world of HMRC action, starting at interest charges and, for taxes such as VAT, PAYE and self-assessment income tax, late payment penalties (interest runs from the due date even under an agreement), and possibly end in enforcement notices, statutory demands and even the company being wound up.
Here’s our guide to the action you may face:
Late Filing Penalties
Some taxes, such as self-assessment income tax, incur an instant penalty if returns are not filed with HMRC by a given deadline. For self-assessment tax returns, you’ll receive a £100 penalty if your tax return is up to three months late, and more if it’s later. Even if you are unable to pay a tax bill in full, you should always submit the return and contact HMRC immediately to explain your circumstances. If you simply missed the filing deadline then the late filing penalty will be added to your bill. If the tax is also paid late, a separate late payment penalty can apply as well.
Late Payment Penalties
Late payment penalties can be imposed by HMRC on taxes such as VAT, PAYE and self-assessment income tax to penalise the taxpayer for missing the payment deadline. There is no late payment penalty for corporation tax. Late payment of corporation tax attracts interest only, although late filing penalties can still apply. In some cases, it may be possible to ask HMRC to cancel or reduce late payment penalties. HMRC will cancel a late payment penalty if you had a reasonable excuse, which HMRC or, on appeal, the First-tier Tribunal decides. Serious illness or a family bereavement are typical examples. A lack of money is not an excuse unless it was caused by events outside your control. Excuses such as improperly completed cheques or work commitments will not be sufficient.
If you have made a Time to Pay arrangement with HMRC, late payment penalties are unlikely to be imposed as long as you made the arrangement before the penalties started. However, interest will still be charged. Late payments penalties are not tax deductible.
Interest Charges
If you fail to make a tax payment in full by the due date, HMRC will apply a daily interest charge on the amount outstanding until the bill is paid. HMRC’s late-payment interest rate is 7.75 percent a year, effective from 9 January 2026. It is an annual rate applied daily to the outstanding amount, not 7.75 percent per day. Do not confuse it with HMRC’s repayment interest rate, which is 2.75 percent and is what HMRC pays you. The late-payment rate tracks the Bank of England base rate plus four percentage points, so check HMRC’s current rates page before relying on this figure. Even if you successfully appeal against a late payment penalty, any interest charged will still be payable. Interest is charged to reflect the fact that HMRC would otherwise be effectively giving you interest-free credit while the tax is outstanding.
Enforcement Notices
If the debt continues to remain unpaid, HMRC’s Debt Management and Banking (DMB) department may issue a notice of enforcement. In England and Wales, the notice of enforcement must give you not less than fourteen clear days before an enforcement agent can take control of goods, under regulation 6 of the Taking Control of Goods Regulations 2013, unless a court orders a shorter period. That England and Wales minimum rose from seven clear days on 1 May 2026. Scotland and Northern Ireland use different procedures: in Scotland, HMRC enforces through a summary warrant and sheriff officers. Certain days, including the day the notice was given, the day of the visit, Sundays and bank holidays, do not count towards that period, so fourteen clear days is always longer than a fortnight on the calendar. If the debt is not settled in that window, HMRC field officers or enforcement agents can identify, take control of and sell goods to settle the debt.
Once an enforcement notice has been issued, it will become more difficult make a Time to Pay arrangement with HMRC. Any visits from HMRC bailiffs will also result in an additional charge being added to the outstanding debt, even if the debt is paid immediately.
Controlled Goods Agreements
If the taxpayer is unable to pay the bailiffs immediately, the agent can take control of company goods by securing them where they are, removing them, or, if you agree, entering into a ‘controlled goods agreement’ that lets you keep using them while you pay. A controlled goods agreement is a contract, not a grace period. You acknowledge that the listed goods are under the agent’s control, agree not to sell or remove them, and agree a repayment schedule. That schedule is negotiated with the agent; there is no statutory further period to pay. Break the agreement and the agent can come back to remove the goods and sell them at auction. Where the agent reasonably believes you trade from the premises, an agent acting for HMRC may re-enter using reasonable force without giving further notice (Tribunals, Courts and Enforcement Act 2007, Schedule 12, paragraph 19). Where that does not apply, for example if the premises are not a trading address, the agent must first give at least two clear days’ notice of re-entry, unless a court orders a shorter period. Clearly, this can be hugely damaging not just to a company’s ability to operate, but also to its reputation.
Statutory Demands
HMRC commonly uses statutory demands to recover outstanding tax debts such as VAT, PAYE and NICs. Issuing one needs no court action, and it gives the debtor 21 days to pay or reach an agreement. If the demand goes unpaid for 21 days, a company owing more than £750 is deemed unable to pay its debts under section 123 of the Insolvency Act 1986, which is one way a creditor can show grounds to petition to wind it up. A creditor does not need a demand first: enforcement of a court judgment that comes back unpaid in whole or in part, or other proof that the company cannot pay its debts as they fall due, can also support a petition.
One point is widely misunderstood, and it matters. The procedure for applying to set aside a statutory demand within 18 days belongs to personal bankruptcy. It is not open to a company. If your company disputes the debt, it may need to apply to court for an injunction restraining the creditor from presenting or advertising a winding-up petition, ideally inside the 21 days rather than waiting. If a petition has already been presented, the company can still oppose it at the hearing. Take specialist advice immediately, because a genuinely disputed debt is a strong answer to a petition but a weak one if raised late.
Winding Up Petitions
If the debt still remains unpaid, HMRC can petition the court to wind up your company. This is the end of the line for your business. If you fail to act immediately or take decisive action by disputing or paying the debt, there is a very real chance your company will be liquidated by the court. Once the bank learns of the petition it will usually freeze the company’s accounts, because payments made after the petition is presented are void if the company is wound up, unless the court validates them. A winding up hearing will be held, and if a winding up order is made, the Official Receiver becomes the liquidator by law and realises the company’s assets for the benefit of its creditors. A licensed insolvency practitioner may be appointed in the Official Receiver’s place later. The company will then be closed down.
Your conduct as a director will be investigated by the office-holder, and findings of unfitness can lead to disqualification for up to 15 years. Personal liability does not follow automatically from a winding-up order. It arises only through a separate route, such as a wrongful or fraudulent trading claim, a misfeasance claim, an overdrawn director’s loan account, a personal guarantee you have given, a personal liability notice or joint and several liability notice (Finance Act 2020, Schedule 13) from HMRC where the statutory conditions are met, or reusing the liquidated company’s name, or a similar one, in breach of the statutory restrictions on reusing company names.
Need advice?
Are you facing HMRC enforcement action for a debt you cannot pay? Perhaps you want help to reach a Time to Pay arrangement with HMRC? For confidential, expert advice, please contact us today on 0208 444 3400.