HMRC & creditors
What happens if my company can't pay HMRC?
Short answer
HMRC will chase the debt, add interest and penalties, and escalate: reminders, then a debt management call, then enforcement, and eventually a winding-up petition. Most companies can agree a time-to-pay arrangement if they ask early and the instalments are realistic. Ignoring HMRC is what turns a payment problem into an insolvency problem.
What does HMRC do first?
HMRC starts with automated reminders and interest, not enforcement. At that stage the debt is still a payment problem, and it is by far the cheapest point at which to fix it.
If nothing happens, the file moves to debt management and you can expect a phone call asking when the company will pay and why it has not. What you say in that call matters, so it is worth being prepared for it.
How does a time-to-pay arrangement work?
A time-to-pay arrangement is HMRC agreeing that the company can clear arrears in instalments. HMRC agrees these where it believes the payments are realistic and the company will keep up with new liabilities at the same time.
- Ask before enforcement begins, not after.
- Propose a figure the company can genuinely pay every month.
- Be ready to explain what caused the arrears and what has changed.
- Expect to stay current on new VAT and PAYE while paying the old debt.
- Get the arrangement confirmed in writing and diarise every payment.
Breaking an arrangement is worse than never having one, because it removes HMRC's confidence in what the company says. If a payment is going to be missed, say so before it is missed.
What are the escalation stages?
| Stage | What it means |
|---|---|
| Reminders and interest | Automated. The debt is growing but nothing formal has started. |
| Debt management contact | HMRC wants a payment plan or an explanation. Time to pay is usually agreed at this stage. |
| Enforcement | Distraint over company assets, direct recovery, or action through the courts. |
| Winding-up petition | HMRC asks the court to wind the company up. The bank account is normally frozen once the petition is advertised. |
When do HMRC arrears mean the company is insolvent?
A company is insolvent when it cannot pay its debts as they fall due, or when its liabilities exceed its assets. Unpaid VAT and PAYE are debts like any others, so persistent arrears are often the clearest sign.
That matters because once a company is insolvent a director's duty shifts towards the creditors as a whole. Taking advice at that point, and acting on it, is one of the strongest things a director can do.
Can I be made personally liable for the company's tax?
Usually no, because the company is a separate legal person. There are exceptions, including personal liability notices where HMRC alleges deliberate behaviour over unpaid PAYE or National Insurance, and joint and several liability notices in specific circumstances.
If you have received anything addressed to you personally rather than to the company, treat it as urgent and get advice on it specifically.
What should I do this week?
- Work out the real total owed to HMRC, by tax and by period.
- Check whether any deadline has legal teeth: a demand, a judgment, a petition.
- Work out what the company can actually pay each month, on the evidence.
- Get a free, confidential conversation booked before the next escalation.
Reviewed by Michael O'Connor, M.A. (Cantab), MABRP
Director and lead adviser. Last reviewed 2026-09-25.
Common questions
Will HMRC agree to a payment plan?
Often, where the proposal is realistic and the company also keeps up with new liabilities. The earlier the request, the better the reception.
Can HMRC take money straight from the company's bank account?
HMRC has direct recovery powers in defined circumstances, and once a winding-up petition is advertised the bank normally freezes the account anyway. Both are reasons not to wait.
Does talking to an adviser tell HMRC anything?
No. An initial conversation with us is confidential, and no insolvency process is triggered by it.
What if the arrears are simply too large?
Then the conversation moves to the other routes: closing the company in an orderly way, or continuing the trade through a new company while the old one is liquidated properly.
Talk it through before you decide anything.
Free, confidential and informal. Michael replies personally, usually the same day.
Clear options for directors under pressure. One adviser, from the first call to the finish.
This page is general information, not legal or financial advice.