Received a HMRC debt management letter but can’t pay

Updated: 10th November 2021

When you fall behind on tax payments, HMRC has a range of measures available to recover their money. These typically begin with ‘reminder’ letters that threaten further action if you don’t pay.

An HMRC debt management letter details how much they believe you owe, and how it must be paid. It’s important to act quickly if you receive a debt management letter, even if you can’t pay, as it can be the start of a process that leads to business closure.

This is because HMRC operates with robust systems that quickly track late payment or non-payment of tax. When a case is identified, it sets in motion a regime of letters, penalties and enforcement measures designed to rapidly recover arrears.

So what should you do if you’ve received a HMRC debt management letter but can’t pay?

HMRC debt management letter – what happens when you can’t pay?

It’s crucial to communicate quickly with HMRC when you can’t pay a tax bill or a debt management letter. You should be honest about your company’s financial situation, and be prepared to explain why your business is experiencing problems.

You may already have attempted to negotiate a Time to Pay (TTP) arrangement with HMRC to extend the timescale for repaying your arrears. If a TTP has been denied, however, or you’ve defaulted on an existing arrangement, HMRC may believe your business is insolvent.

This could lead to business assets being seized by HMRC bailiffs to the value of the debt, or in the worst-case scenario, a winding up petition being presented against the company at court.

What to do when you can’t pay an HMRC debt management letter

Seek help from a licensed insolvency practitioner (IP)

A licensed IP will check the amount demanded by HMRC is accurate, quickly assess your company’s financial situation, and then present your best options. If you’ve yet to apply for a Time to Pay arrangement, a licensed insolvency practitioner can put forward a realistic proposal to HMRC, ensuring the company can maintain new repayment levels for the full term.

Secure further funding

Alternative funding, such as invoice finance, merchant cash advances, and asset-based finance, can offer a solution that’s more tailored to your business’ circumstances than a bank loan.

Company Voluntary Arrangement (CVA)

HMRC may be willing to accept a proposal for a Company Voluntary Arrangement, which is an official procedure that restructures debt. Your company makes one monthly repayment to the plan, which is distributed to creditors as agreed. In some cases a proportion of the debt can be written off at the end of the arrangement, which generally lasts 3-5 years.

Company administration

Company administration ceases any legal action against the company, so if you fear enforcement measures by HMRC are imminent the business will be protected by an eight-week moratorium. This allows the IP to plan the company’s exit from administration, and this could involve a CVA, or voluntary liquidation if rescue isn’t possible.

Creditors’ Voluntary Liquidation (CVL)

When you place your company into Creditors’ Voluntary Liquidation it means there’s no chance of rescue and it will close down. CVL helps you fulfil your legal duties as a director of an insolvent company – it prioritises creditor interests by minimising their losses. You may also be able to claim director redundancy by taking this route.

If you’ve received a HMRC debt management letter and can’t pay, our partner-led team at Real Business Rescue can help. We’ll provide unbiased, independent advice, and ensure you comply with strict insolvency laws in the UK. Please contact one of the team to arrange a free, same-day consultation. We work from a broad network of offices around the country.

Keith Tully

Partner

0800 644 6080
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