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 penalties for repeated or prolonged late payment, then demand letters, then enforcement 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 payroll amounts you have not paid over to HMRC by the due date: the income tax and National Insurance you have deducted from employees’ wages, plus the employer’s National Insurance the company owes on top, and other amounts collected through payroll such as student loan repayments. Much of it 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 the 22nd of the month. If you still pay by cheque, and only smaller employers can, HMRC must have received it by the 19th. 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 penalty can apply where you do not pay the full amount due by the deadline. 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 late payment in the tax year does not count as a default and carries no monthly late-payment penalty. Every late payment after that is a default, charged at the rate below on the amount that is late in the relevant month.
| Number of defaults in the tax year | Penalty on the amount late that month |
|---|---|
| First late payment (not a 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 a Full 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 can apply.
The monthly filing penalty is fixed by the size of your payroll rather than the amount owed. HMRC does not charge it for the first failure in a tax year, for an FPS sent within three days of payday, or for a new employer’s first FPS sent within 30 days of paying an employee. The first-failure exemption does not apply to employers on an annual scheme.
| 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 runs more than twelve months late, on top of the monthly penalties HMRC can charge a further penalty of up to the PAYE that was payable for that tax year and still unpaid at 19 April after the year end. And if you do not send the FPS at all (or an Employer Payment Summary where you paid nobody), HMRC may raise a specified charge based on an estimate drawn from your earlier payment and filing history. Sending the missing report replaces that charge with the amount actually due.
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. In England and Wales, 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 there runs along a fairly set path. Scotland and Northern Ireland have their own procedures: in Scotland, for example, HMRC first applies to the sheriff for a summary warrant.
| 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 can become evidence of when financial difficulty began, though it does not by itself fix the date of insolvency. |
| Notice of enforcement | Serves a formal notice before enforcement agents attend. | At least 14 clear days (Sundays, bank holidays, Good Friday and Christmas Day not counted) to pay the debt in full, unless the court orders a shorter period. |
| 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 can be important evidence that you knew the company was in serious financial difficulty. No single letter automatically fixes the date the company became insolvent, or the point at which wrongful-trading risk arises — that depends on the company’s overall financial position and the statutory test.
If the debt remains unpaid, HMRC issues a notice of enforcement giving you at least 14 clear days (Sundays, bank holidays, Good Friday and Christmas Day not counted; the day of notice and the day of the visit do not count either) to pay in full, unless the court orders a shorter period. Under the Taking 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 a controlled 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 on dealing 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 may present a winding-up petition. Its enforcement team leads that through in-house solicitors. If the court makes a winding-up order, the company goes into Compulsory Liquidation.
Can HMRC Make You Personally Liable for PAYE Arrears?
PAYE arrears are a company debt, but a director can be made personally liable for part of them. Where unpaid National Insurance results from a director’s fraud or neglect, HMRC can serve a personal liability notice for it, and the company does not need to be insolvent first. Joint and several liability notices (Finance Act 2020, Schedule 13) can also pass company tax to a director in some insolvency and tax-avoidance cases. Separately, your own conduct once the company is insolvent can create personal liability.
Persistent PAYE arrears can be one of the clearest warning signs that a company is insolvent. Personal liability is not an automatic consequence of insolvency plus continued trading. It can arise under wrongful trading, under section 214 of the Insolvency Act 1986 (insolvent liquidation) and section 246ZB (insolvent administration), if you knew, or ought to have concluded, that the company had no reasonable prospect of avoiding insolvent liquidation or insolvent administration, and did not take every step a reasonably diligent director would take from that point to minimise the loss to creditors.
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 also hold 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
A Time 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 decides each request on its merits, looking at your compliance history and any earlier arrangement that broke down, 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 to HMRC 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 the approved proposal, often monthly contributions over a fixed term. | CVA |
| Creditors’ Voluntary Liquidation | The company cannot be rescued and you choose to close it. | Directors start the process: the shareholders resolve to wind the company up and the creditors nominate the liquidator, before HMRC forces closure. | 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. A Company Voluntary Arrangement can hold a viable company together while it repays what it can. A Creditors’ 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® on 0208 444 3400 or use our contact 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 runs from the date the payment is due and payable, which is the 22nd for electronic payments and the 19th for cheques.
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 penalty of 5% of the unpaid amount is added if the arrears are still outstanding six months after they fell due, with a further 5% after twelve months. Separately, a monthly penalty of 1% to 4% of the late amount applies from the second late payment 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 must give your business at least 14 clear days (Sundays, bank holidays, Good Friday and Christmas Day not counted) to pay the debt in full, unless the court orders a shorter period. 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 notice period (at least 14 clear days) has passed, 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 decides each request on its merits, looking at your compliance history and any earlier arrangement that broke down, and it 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.