How to finance a company tax bill when you can’t afford to pay

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Updated: 22nd February 2021

What to do when you cannot pay the company tax bill

If your company has received a tax bill but you can’t afford to pay, HMRC will impose penalties and charge interest on the outstanding amount. These serve as a warning that the debt will only increase the longer it remains unpaid, so it’s important to act quickly to protect your business from further action.

But how can this be done? Are lenders likely to sanction borrowing when the business is already in a poor financial state, and if they don’t, what other options are available?

Obtaining finance to pay your company tax bill

Depending on the amount outstanding, you may be able to secure a loan to pay off your debt with HMRC. Some lenders will need one or more assets as security before sanctioning a loan, whilst other might demand personal guarantees from the directors to reduce their risk.

You should be very careful before taking on borrowing in this situation, however, and obtain professional advice so you don’t place your own money or the future of the business at too high a risk.

HMRC Time to Pay (TTP) arrangement

If you’ve always had a positive relationship with HMRC and paid your tax bills on time, you may be able to negotiate a Time to Pay arrangement, or TTP. This is an instalment plan, typically lasting for 6-12 months, that helps you pay off the tax debt without further penalties.

Again, it’s a good idea to obtain professional assistance when negotiating with HMRC, so you don’t commit to repayments that are unsustainable. If a TTP isn’t a realistic option, however, there are still other procedures that could protect the company from creditor legal action.

Company Voluntary Arrangement (CVA)

Company Voluntary Arrangements are available to insolvent businesses that have been professionally assessed as being viable in the long-term. If your problems have arisen due to a specific issue, for example, such as an unexpected expense, but the business should recover given a little time, a CVA can be a good option.

Once your company enters insolvency you must obtain help from a licensed insolvency practitioner (IP) to prevent your creditors’ situation from worsening. If they recommend a CVA, the company is protected from legal action by creditors – an important point given that HMRC act very quickly to recover outstanding tax.

What if liquidation is the only option?

If your company’s financial situation is beyond recovery and liquidation is the only route, entering Creditors’ Voluntary Liquidation (CVL) is preferable to waiting for a creditor to force the issue.

With compulsory liquidation you and your company come under significant scrutiny from the Insolvency Service as to why the business became insolvent, and whether the financial position of creditors has been worsened.

By using the voluntary liquidation process, however, you’re placing creditor interests first. This means that, although the liquidator will always carry out thorough investigations into company insolvency, you may not be subjected to quite the same degree of scrutiny.

You might also be able to claim redundancy as a director when the company is liquidated, which could generate funds to pay the professional fees involved, clear some of the company’s debts, or provide you with a financial breathing space.

If you’re in arrears with HMRC you need to act quickly. Real Business Rescue offers free same-day consultations to rapidly assess situations such as these, and offer reliable professional guidance on the best way forward. Please contact one of our partner-led team – we work from a wide network of offices throughout the UK.

Jonathan Munnery


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