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. As at 18 August 2026 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. 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. That minimum rose from seven clear days on 1 May 2026. 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, company assets will be placed under a ‘controlled goods agreement’. 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 return, remove the goods without fresh notice and sell them 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 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 the evidence a creditor needs to petition to wind it up.
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, the route is to apply to court for an injunction restraining the creditor from presenting a winding-up petition, and to do it inside the 21 days rather than waiting. 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. 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 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: a wrongful or fraudulent trading claim, a misfeasance claim, an overdrawn director’s loan account, a personal guarantee you have given, or a personal liability notice from HMRC where the statutory conditions are met.
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.