HM Revenue and Customs expects your monthly PAYE to reach it by a fixed date: the 22nd of the month if you pay electronically, or the 19th if HMRC still receives a cheque by post. Miss that date and the collection process begins, quietly at first.
What follows is rarely a single letter. It is a sequence. Daily interest, then automatic penalties, then demand letters, thenenforcement agents at your premises, and, if nothing is resolved, a winding-up petition that can end the company through the court.
As a firm of licensed insolvency practitioners, we deal with PAYE arrears from the office-holder’s side of the table. The sequence below is the one we watch play out, and the point where it becomes hard to reverse arrives earlier than most directors expect.
What Are HMRC PAYE Arrears?
HMRC PAYE arrears are the income tax and National Insurance you have deducted from employees’ wages but not paid over to HMRC by the due date. This is money you have collected on HMRC’s behalf, which is why it treats non-payment more seriously than an ordinary trade debt.
The deadline is not flexible. Electronic payments must clear by the22nd of the month. If you still pay by cheque, and only smaller employers can, HMRC must have received it by the19th. Electronic banking is the safer route, because the risk of a postal cheque arriving late falls on you.
From the moment a payment is late, daily interest starts to accrue on the outstanding amount and keeps running until the day you clear it. If you already know you cannot pay, the useful call is to HMRC, before the deadline rather than after it.
What Are the Penalties and Interest on HMRC PAYE Arrears?
HMRC charges late-payment penalties on PAYE that is not paid in full or on time, and they stack in a predictable way. The interest is the quiet part. The penalties are where a single missed month turns into a pattern HMRC prices accordingly.
- Daily interest accrues on all unpaid amounts, from the due and payable date to the date you pay.
- A late-payment surcharge applies where you pay less than is actually due. If the amount is still outstanding after six months, HMRC adds a 5% penalty on the unpaid sum, and a further 5% once it remains unpaid after twelve months.
On top of that, the monthly late-payment penalty scales with how many times you default in the same tax year. Your first default in the year carries no penalty percentage. Every default after that is charged on the amount that is late in the relevant month.
| Number of defaults in the tax year | Penalty on the amount late that month |
|---|---|
| 1st default | 0% |
| 1 to 3 | 1% |
| 4 to 6 | 2% |
| 7 to 9 | 3% |
| 10 or more | 4% |
The message in that table is simple. HMRC does not punish the one-off slip. It punishes the habit, and the percentage climbs the more often you fall behind in a single year.
RTI and FPS Penalties for Late PAYE Reporting
Paying is only half the obligation. Under Real Time Information (RTI), your payroll software sends HMRC aFull Payment Submission (FPS) each pay run, telling it what you paid employees and what you deducted. Report late, or fail to file online, and a separate penalty regime applies.
The monthly filing penalty is fixed by the size of your payroll rather than the amount owed.
| Number of employees | Monthly RTI penalty |
|---|---|
| 1 to 9 | £100 |
| 10 to 49 | £200 |
| 50 to 249 | £300 |
| 250 or more | £400 |
Two further points bite harder. If your reporting runsmore than three months late, HMRC can charge an additional 5% penalty on the combined tax and National Insurance that should have been reported. And if you do not submit the FPS at all, HMRC raises its own estimate of what you owe, based on your previous submissions, then adds penalties to that figure.
An HMRC estimate is rarely in your favour. Once it is on the system, you are arguing your own figures down from theirs, which is a weaker position than filing on time would have been.
How HMRC Enforces PAYE Arrears
Doing nothing is the one response that reliably makes this worse. HMRC does not need a court order before it acts on PAYE, and it moves faster against directors it regards as habitual defaulters. The escalation runs along a fairly set path.
| Enforcement stage | What HMRC does | Your window |
|---|---|---|
| Demand letters | Issues threatening letters demanding immediate payment once cash flow shows in missed PAYE. | Respond at once. This date can later mark when the company became insolvent. |
| Notice of enforcement | Serves a formal notice before enforcement agents attend. | 14 days to pay the debt in full. |
| Enforcement agents | Sends agents to identify, seize and sell goods to settle the debt. | Pay, or be asked to sign a controlled goods agreement over listed assets. |
| Winding-up petition | Petitions the court, led by HMRC’s own solicitors, to close the company. | Act before the hearing. A successful petition ends in Compulsory Liquidation. |
The demand letters matter more than their flat tone suggests. When we review a company’s conduct after appointment, those letters help fix the date it became insolvent. The demand letter you file in a drawer today is the date we circle later as the liquidator.
If the debt remains unpaid, HMRC issues anotice of enforcement giving you 14 days to pay in full. Under theTaking Control of Goods Regulations 2013, that notice lets HMRC send in enforcement agents to identify, seize and sell goods against the debt.
A visit adds further charges to the company. If you cannot pay on the spot, the enforcement agents note your assets and ask you to sign acontrolled goods agreement. That is not a rescue. It lets you keep using equipment you no longer fully control, on the understanding it can be removed if you default.
Even where they seize nothing, the presence of enforcement agents in your reception, listing the vans while staff watch, disrupts the business. If you have reached this stage, get advice ondealing with HMRC’s enforcement agents the day the notice lands, not the week the agents arrive.
As a last resort, if HMRC cannot recover the debt, it issues a winding-up petition. Its enforcement team leads that through in-house solicitors, and if the petition succeeds the company is wound up through the court by way of Compulsory Liquidation.
Can HMRC Make You Personally Liable for PAYE Arrears?
PAYE arrears are usually a company debt. The risk to you personally opens up through your own conduct once the company is insolvent, not through the arrears themselves.
Persistent PAYE arrears are one of the clearest signs a company is insolvent. If you know the company is insolvent but keep trading, or act in a way that does not put creditors’ interests first, you risk being held personally liable for some or all of the company’s debts. That exposure runs throughwrongful trading under the Insolvency Act 1986.
This is why those early demand letters carry weight beyond the sum on the page. They evidence the point at which you knew, or should have known, that the money owed to HMRC was mounting. In certain cases HMRC can alsohold a director personally responsible for unpaid company tax, so the assumption that limited liability always protects you is worth testing early.
What to Do if You Cannot Pay Your PAYE Arrears
If you cannot meet a PAYE liability, the strongest move is to contact HMRC early and propose a plan, rather than wait for it to chase. A negotiated arrangement will not always stop interest or penalties accruing, but it changes how HMRC treats you.
Ask for Time to Pay Before the PAYE Falls Due
ATime to Pay arrangement spreads an overdue tax bill into instalments. It is best requested before the payment falls due, and it helps to show how the business has already cut its costs. Done well, it can buy you a longer runway without deepening the immediate cash-flow squeeze.
HMRC generally accepts only one arrangement in any 12-month period, and it is unlikely to negotiate again if you fall behind. It will also expect you to keep meeting future PAYE liabilities in full while the arrangement runs. Miss those, and HMRC ends the arrangement and moves back to enforcement.
What HMRC Will Ask You to Disclose
To agree an arrangement, HMRC will want a clear account of your position. Expect to set out the reasons you cannot pay, what the business is doing to raise the money, and the numbers behind your offer.
- Why you are unable to pay the PAYE on time.
- How the business is trying to clear the balance, for example raising finance, chasing a debt owed to you, or arranging further banking facilities.
- How much you can pay immediately, and how long you need to clear the rest.
If the arrears sit alongside other tax debts, our team can help you frame the request. We set out the wider picture in our guide toHMRC debt management and arrears.
Your Options When PAYE Arrears Cannot Be Repaid
Where Time to Pay is refused, or an arrangement has already failed, the question changes. It is no longer how to pay the arrears on the current terms, but whether the company can be rescued at all, and on whose terms it closes if it cannot.
A winding-up petition is the most serious threat to the business, but it is not the only route left. There are formal insolvency options that keep more control in your hands than a court-led closure does.
| Route | When it fits | What it does | Related guide |
|---|---|---|---|
| Time to Pay | You can clear the arrears within a defined period. | Spreads the PAYE debt into monthly instalments. | Time to Pay |
| Company Voluntary Arrangement | The company is viable but carrying unaffordable arrears. | Binds creditors to a single monthly contribution over a fixed term. | CVA |
| Creditors’ Voluntary Liquidation | The company cannot be rescued and you choose to close it. | Directors place the company into liquidation before HMRC forces it. | CVL |
| Compulsory Liquidation | HMRC forces closure through the court. | The court winds the company up on HMRC’s petition. | Least control for you |
The choice between these is really a choice about control, and we weigh it on the numbers rather than the mood of the moment. ACompany Voluntary Arrangement can hold a viable company together while it repays what it can. ACreditors’ Voluntary Liquidation lets you close the company on your own initiative, before HMRC’s petition takes that decision out of your hands.
If you have received a petition, or you can see one coming, that is the point to talk to us. Call AABRS® on0208 444 3400 or use ourcontact form for a confidential discussion with one of our licensed insolvency practitioners. We will tell you which of these routes is realistic on your numbers, and which door is about to close.
Frequently Asked Questions About HMRC PAYE Arrears
When is monthly PAYE actually due?
Electronic PAYE payments must reach HMRC by the 22nd of the month. If you still pay by cheque, and only smaller employers can, HMRC must receive it by the 19th. Because a late postal cheque is your risk, not HMRC’s, electronic banking is the safer route. Interest starts to run the day after the deadline.
How much interest and penalties does HMRC add to late PAYE?
Daily interest runs on the unpaid amount until you clear it. A late-payment surcharge of 5% is added if the arrears are still outstanding after six months, with a further 5% after twelve months. Separately, a monthly penalty of 1% to 4% applies once you default more than once in the same tax year, scaled to how often you fall behind.
What is a notice of enforcement and how long does it give me?
A notice of enforcement is the formal warning HMRC serves before enforcement agents attend. It gives your business 14 days to pay the debt in full. If you do not, HMRC can send agents under the Taking Control of Goods Regulations 2013 to list, seize and sell company assets. Treat the notice as the moment to act, not the agents’ visit.
Can HMRC take my company’s assets for PAYE arrears?
Yes. Once the 14-day notice of enforcement expires, HMRC’s enforcement agents can identify, seize and sell company goods to cover the debt. If you cannot pay on the spot, they list your assets and ask you to sign a controlled goods agreement, which lets you keep using the goods but allows their removal if you default. A visit also adds further charges to the company.
Can I still get a Time to Pay arrangement if I have missed PAYE before?
It is harder. HMRC generally allows only one arrangement in any 12-month period and is reluctant to negotiate again if you have already fallen behind. It will also expect you to keep future PAYE fully up to date while any arrangement runs. If a second arrangement is unlikely, the realistic conversation is about a formal rescue or an orderly closure rather than another instalment plan.
What happens if I cannot pay the PAYE arrears at all?
If the arrears cannot be repaid and Time to Pay is off the table, the company is likely insolvent, and trading on regardless raises wrongful trading risk for you personally. The practical routes are a Company Voluntary Arrangement where the company is viable, or a Creditors’ Voluntary Liquidation where it is not. Both keep more control in your hands than waiting for HMRC’s winding-up petition.