Kevin McLeod
Written By Kevin McLeod
Licensed Insolvency Practitioner
July 22nd, 2023

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 must 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 over a typical period of 12 months. The earlier you contact HMRC, the greater the likelihood of a Time to Pay arrangement being made. Fail to contact HMRC and you will enter the murky world of HMRC action, starting at late payment penalties and interest charges, 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 payment penalty will be added to your bill.

Late Payment Penalties

Late payment penalties can be imposed by HMRC to penalise the taxpayer for missing the payment deadline. In some cases, it may be possible to ask HMRC to cancel or reduce late payment penalties, but HMRC will have little sympathy for taxpayers with reasons other than a serious illness of family bereavement etc. 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. The current interest rate for late payment is 2.75 percent. 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. If the outstanding payment is not paid in full within 14 days of receiving the notice, HMRC will begin enforcement action under the Taking Control of Goods Regulations, which allow HMRC field officers or bailiffs to identify, seize and sell goods to settle outstanding debts.

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, company assets will be placed under a ‘controlled goods agreement’. The taxpayer then has a further seven days to pay the outstanding amount or the bailiffs will return and confiscate the assets for them to be sold at auction. 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, NICs etc. This process requires no court action and gives you 21 days to pay the debt in full or 18 days to act to set aside the demand. Fail to do so and you are at serious risk of a winding up petition being issued against your company.

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. The company bank accounts will be frozen, a winding up hearing will be held, and if a winding up order is made, a liquidator will be appointed to sell the company’s assets for the benefit of its creditors. The company will then be closed down.

Your conduct as a company director will also be investigated and any acts of misconduct or wrongdoing could lead to a lengthy directorship ban. You also risk being made personally liable for a proportion of the company’s debts.

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 contac us today on 020 8444 3400.