What happens if I can’t pay my tax bill?

What are the likely consequences and what repayment options do you have?

Even if your business is struggling, you are still expected to make PAYE, VAT and Corporation Tax payments on time. Although HMRC may be willing to give you some leeway, you must deal with tax debts as quickly as possible, as the consequences of not paying can be serious. 

HMRC has strong enforcement powers to recover tax debts and it’s known to take action quickly. As well as court action and bailiffs, it can force companies into liquidation to recover the money it’s owed and prevent further tax debts from accruing.

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What action will HMRC take if I cannot pay my tax bill?

If your payment deadline passes and you haven’t paid what you owe, you will find yourself on the receiving end of a range of escalatory measures. Initially, you will get a penalty for failing to pay on time. You will also be charged interest on overdue amounts from the due date, increasing your debt burden. 

You’ll also receive reminders and warning letters, which you should take seriously. If you ignore the reminders, you can expect to receive a County Court Summons. If you do not pay or dispute the debt within 14 days, you may be issued with a County County Judgment (CCJ), which proves the debt in law and is a clear indication that the company is insolvent. 

Your business is now in a precarious position. As well as harming its credit rating, the CCJ paves the way for HMRC to issue a Winding Up Petition against the company, which can force it into Compulsory Liquidation. HMRC is responsible for winding up more companies than any other creditor, so this is a threat you must take seriously.

I can’t pay my business’s tax bill on time - what should I do?

Contact HMRC to let it know you’re struggling to pay a tax bill at your earliest opportunity, ideally before the payment is due. It’s tempting to ignore the problem, but if HMRC doesn’t know you’re making every effort to pay the bill, the pressure will ramp up quickly. You can expect fines, interest charges, legal action and visits from bailiffs, all adding extra stress and expense that you could do without.  

Professional guidance is invaluable if you’re struggling to pay a tax bill. We can provide honest and reliable advice so you know exactly where you stand. We will discuss your options with you and can negotiate with HMRC on your behalf to help you avoid an increase in your arrears and its powerful debt recovery actions. 

What are my options if I can’t pay my business’s tax bill?

You have several options available that can save your business and give you more time to pay or close your company in the most beneficial way.   

Time to Pay arrangement

If you’re struggling to pay VAT, PAYE or Corporation Tax arrears, HMRC may be willing to give you more time to pay. A Time to Pay (TTP) arrangement is an informal agreement to repay the money you owe over time, with typical repayment periods lasting three to six months but occasionally stretching to 12 months. 

When negotiating with HMRC, it will look closely at the affordability of your repayment proposal. You will need to propose a monthly repayment you can realistically afford while keeping up with your current tax obligations at the same time. HMRC will expect to see a clear plan, including sales and cash flow forecasts, to demonstrate how you’ll pay the debt.

Formal repayment arrangement

Not every business is suitable for an informal Time to Pay arrangement. You might have had a TTP that has failed in the past, or HMRC might refuse your proposals. In that case, there are other repayment options available. 

If your business is viable over the long term and has tax arrears as well as other debts, a Company Voluntary Arrangement (CVA) could give you some breathing space. As a CVA is a formal insolvency procedure, you’ll need the help of an insolvency practitioner to set it up. 

They’ll help you negotiate with your creditors to repay what you owe in monthly instalments over a typical period of three to five years. If your creditors accept your proposals, your debts will be frozen so no more charges or interest can be added to the amount you owe, and all creditor legal action against you will cease.   

Company administration

Company administration is another option that could provide valuable breathing space from your tax debts. On entering administration, your company will receive an eight-week window of protection, known as a ‘moratorium’, which ceases any legal action your creditors are taking against you. That can be particularly beneficial if HMRC has issued or is threatening to issue a Winding Up Petition to force the company into liquidation. 

During this legal stay, insolvency practitioners will have the time to consider the long-term viability of the business and put together a restructuring plan. That could involve the sale of assets or a formal repayment arrangement like a CVA. Alternatively, the insolvency practitioner may decide the company’s financial problems are insurmountable and it’s in the creditors’ best interests to close it down.  

Voluntary liquidation

If your company cannot pay its tax debts and is no longer financially viable, a Creditors’ Voluntary Liquidation (CVL) is likely to be the best option for you and your creditors. 

In this process, you choose to liquidate the company voluntarily to protect creditor interests and meet your legal obligations as a company director. You will need to appoint an insolvency practitioner to administer the process. They will sell the company’s assets to repay its debts as much as possible. Any remaining debts will be written off and the company will cease to exist as a legal entity.   

The benefit of this process is that by taking control of the situation, you reduce the risk of allegations of wrongful trading and misconduct that you could otherwise face as a director. You may also be eligible to claim director redundancy pay, which can cover the liquidation fees and help to put you on a path to something new.

Get professional advice

If you’re struggling to pay your tax bill, we can provide professional and reliable guidance to help you avoid damaging action by the tax authority and find the best solution for your business. Arrange a meeting at one of our 100+ offices throughout the UK or call our experts for a free, same-day consultation.