All companies, whether large or small, will have to engage with HMRC throughout the course of their existence. It’s no surprise that HMRC is a frequent creditor of companies. When companies start to struggle financially, they are often in a position where they can’t pay HMRC as and when taxes become due.
HMRC have a large body of resources that they can use to recover outstanding debts, so it is important to ensure that you engage with them and treat them as a priority. HMRC tax problems will only get worse if you don’t address them at the earliest possible stage.
Knowing at which stage you are at in the HMRC’s escalation process, if your company has accumulated tax arrears, will help you to take steps to address the issues any company indebted to HMRC will face. We have put together a guide to HMRC’s standard company debt recovery processes and steps you can take to help resolve the issues.
FAQ’s
Call the HMRC payment problems line for the tax you owe: VAT 0300 200 3831, employer PAYE 0300 200 3819 or Corporation Tax 0300 200 3840. The lines are open Monday to Friday, 8am to 6pm.
If you’re struggling with tax debt, you can negotiate time to pay, raise finance to pay your arrears, or choose voluntary liquidation and close your company down.
In normal cases investigations will stretch back 4 years. This rises to 6 years where the loss of tax was caused carelessly and, where it was caused deliberately or the company failed to tell HMRC it was liable to tax, may go back 20 years.
HMRC may agree a Time to Pay arrangement at its discretion. The length depends on what the company can afford. Arrangements are usually for a few months, and over 12 months only in exceptional cases.
Stages within the HMRC Debt Collection Process:
Stage One: HMRC Letters
Shortly after a company fails to pay its debt on time, HMRC will start sending a series of letters to let you know that the tax is overdue and may be subject to penalties for late payment.
If you are receiving these letters, speak to HMRC. If the failure to pay has arisen from temporary cash-flow problems, they may be willing to discuss the repayment of the tax over a longer period of time. These Time to Pay arrangements will halt the build up of further penalties and letters from HMRC as long as the company fulfils its obligations under the agreement. Make sure that you also pay any further taxes that become due on time to stop your HMRC tax arrears from building further.
Stage Two: HMRC Field Force Enforcement Agent Visit
If the letters do not result in the repayment of the tax or an agreement about how the tax will be repaid, HMRC may send an enforcement agent to the company’s premises, or take other recovery action such as court proceedings or a winding-up petition. The enforcement agent will discuss the outstanding debt and methods for repayment.
Stage Three: Notice of Enforcement
If HMRC do not receive payment, they may issue a Notice of Enforcement. This stage, and the visit in Stage Two, describe enforcement in England and Wales; HMRC uses different procedures in Scotland and Northern Ireland. That notice must give you at least fourteen clear days before an enforcement agent can take control of goods. The minimum rose from seven clear days on 1 May 2026, and clear days exclude the day the notice was given, the day of the visit, Sundays, bank holidays, Good Friday and Christmas Day. Once the period has passed, HMRC may take control of the company’s goods, other than exempt goods, sell them and apply the proceeds to the debt. Enforcement also adds fixed fees to what you owe: £79 when the notice is sent, and £247 plus 7.5 percent of any debt above £1,900 once an agent attends.
Stage Four: Legal Action
The next steps HMRC will take are to either issue a statutory demand or commence legal proceedings against the company in the County Court. Legal action will result in the Company being taken to court, while a statutory demand is one way a creditor can show the company cannot pay its debts. HMRC can also present a winding-up petition without serving a statutory demand first. Both are very serious steps that can have onerous consequences. HMRC may also contract a third-party debt collection agency in the case of legal action, which is likely to result in a significant number of communications to try and recover the debt.
The decision about which course to take will depend on the circumstances surrounding the debt, but they will look into the history of the debt, how long it has been outstanding and its total amount. In both cases, they will notify you of the action and give you a deadline to respond.
Stage Five: Tax Deposits and Bonds
If HMRC think there is a risk that you won’t pay future taxes and duties on time, they can ask for a deposit or a bond from the company using a Notice of Requirement. The Notice of Requirement shows the amount of the required deposit, when it is due and the ways in which you can make the payment. The amount of time that HMRC can keep the deposit depends on the tax but generally it is between 12-24 months.
Giving security to HMRC can be problematic for a number of reasons, not least because it requires the company to provide HMRC with security in the form named by the Notice of Requirement at a time when it is having financial difficulties. Additionally, the Notice of Requirement usually names the company’s directors or other individuals deemed appropriate alongside the company. This means that each person named can be required to give the security jointly and severally — each is responsible for ensuring the security amount is provided. It is not the same as making the director personally liable for all of the company’s existing tax debts; that can only happen under separate HMRC powers, such as a joint and several liability notice. The Notice of Requirement explains how to ask for a review or appeal, which must be made within 30 days of the notice.
Failing to provide the security by the date required can be a criminal offence. The exact penalty depends on the tax and statutory regime involved — it is not a single universal fine — so check the notice and current HMRC guidance for the figure that applies to your case.
Stage Six: Winding Up Petition for Compulsory Liquidation
If the debt is for an amount over £750, HMRC can request a court hearing and serve a winding up petition on the company. HMRC cannot advertise the petition in the London Gazette until at least seven business days after it has been served on the company — that is a minimum gap the rules impose on HMRC, not a statutory deadline for the company to settle or negotiate, though the company can use that window to try to resolve the debt before advertisement. Once the petition is advertised, other creditors of the company can use this petition to wind the company up as well.
Transactions after the petition has been presented to the court, which can be days before it is served, carry serious risk: under section 127 of the Insolvency Act 1986, if a winding-up order is later made, any disposal of the company’s property made after the petition was presented is void unless the court orders otherwise. Directors should get urgent advice before making significant payments or disposing of assets. Banks will often freeze the company’s accounts as a precaution once the petition is advertised, though this is a practical response rather than an automatic legal effect of service itself. At the court hearing, the court may make a winding up order if the company cannot pay the debt, but it can also dismiss or adjourn the petition. If an order is made, the Official Receiver becomes liquidator unless or until an insolvency practitioner is appointed, and the liquidator winds the company up and distributes its assets to the creditors.
Steps You Can Take
The biggest thing that you can do to minimise your difficulties, whichever stage you are at, is to engage with HMRC and keep them informed. Showing them that you are doing what you can to clear the company’s tax arrears and make any other tax payments that arise on time will put you in a better position when it comes to trying to negotiate repayment terms, helping to avoid legal action simply or escalation to the next stage in the process.
If you are in the later stages, it may be better to speak to specialists such as AABRS® to help you find solutions to the situation. We are experienced, both in liaising with HMRC to try and arrange solutions that will stop the situation from worsening and advising directors on courses of action available to them in light of their particular circumstances. We will also help you understand your duties to other creditors: once the company is insolvent, or likely to become so, directors must take creditors’ interests into account, and once insolvent liquidation or administration cannot reasonably be avoided, they should take every step to minimise creditors’ losses.
Request a Time to Pay Arrangement
You can try and negotiate a Time to Pay arrangement with HMRC’s Business Payment Support Service. This essentially gives you more time to pay the tax debt. The best way to contact HMRC is over the phone – make sure that you have all relevant details to hand, such as the company details, why it’s having difficulty paying the debt in question and its predicted cash-flow for coming months. This will enable you to give them the information they will require to make a decision. HMRC has a separate payment problems line for each tax, all open Monday to Friday, 8am to 6pm: VAT 0300 200 3831, employer’s PAYE 0300 200 3819 and Corporation Tax 0300 200 3840.
Enter into a Company Voluntary Arrangement
In a Company Voluntary Arrangement (CVA), a company makes a proposal to its creditors offering to pay contributions from future profits or asset disposals. Repayment terms will be drafted to suit the needs of the company, so may be an immediate lump sum payment or over a longer period of time (generally up to five years). The benefit of a CVA is that it binds all the unsecured creditors who could vote on it, so it can be a powerful way of restructuring debt. HMRC’s VAT and PAYE/National Insurance deduction arrears are different: they are preferential debts, and a CVA must pay them in priority unless HMRC agrees otherwise. The directors make the CVA proposal, and a licensed insolvency practitioner such as AABRS® must act as nominee and then supervisor, and usually helps the directors prepare it. If this is something that you would like to discuss, please contact us on 0208 444 3400 or by using our Contact Us form.
Put the Company into Administration
Administrations are aimed at helping companies that are likely to become insolvent to recover. Once an administrator has been appointed, they must first aim to rescue the company as a going concern. If that is not reasonably practicable, or creditors as a whole would do better otherwise, the aim becomes a better result for creditors as a whole than a liquidation would give. Only if neither is reasonably practicable may the administrator realise property to pay secured or preferential creditors, and then without unnecessarily harming the creditors as a whole.
Pre-Packaged Administration
In a pre-pack administration, the company will negotiate the sale of agreed assets to a third party prior to the administrator being appointed. Once the administrator is appointed, the sale normally happens very quickly. This can be a quick solution for companies on the brink of or in insolvency.
Cant Pay HMRC? Contact us for Advice
If your company owes HMRC tax arrears and is struggling to pay, call us on 0208 444 3400 or Contact Us.