Can’t pay a PAYE tax bill in Scotland

As a limited company, PAYE is not a tax it pays itself. Instead, the company collects Income Tax and National Insurance contributions from employees’ wages and passes them to HMRC.

Usually, this isn’t an issue because the funds are set aside and never treated as company money. However, during downturns, seasonal dips or cash flow shortfalls, some companies have little choice but to use these funds as a safety net. They then struggle to pay HMRC when the liability becomes due. 

If your company can’t pay a PAYE tax bill in Scotland, there are several options available to you. However, you do need to act quickly. HMRC is a firm and proactive creditor, particularly where PAYE arrears are concerned, and the longer you leave it, the worse the situation will get. 

What happens if I don’t pay PAYE in Scotland? 

The first failure to pay PAYE on time does not automatically count as a default. However, you will pay interest on the outstanding amount from the due date, and penalties will apply if you pay less than you owe or miss subsequent payments. 

Those penalties are calculated based on the amount owed and whether it’s a first, second or third default within 12 months. And if PAYE remains unpaid six months after the due date, HMRC can charge an additional penalty of 5% of the outstanding amount.

Clearly, the longer you wait to do something about your PAYE arrears, the more you’re likely to owe. There will also come a point when HMRC moves beyond penalties and takes action to recover the arrears. 

In Scotland, HMRC can apply to the Sheriff Court for a summary warrant to demand the payment of the tax the company owes. Once a summary warrant is issued, you have 14 days to dispute the debt, pay the outstanding amount or agree a payment plan with HMRC. If you fail to act, HMRC can instruct the sheriff to carry out diligence action against you, including: 

• Seizing and selling company possessions
• Recovering the debt from the company’s bank account
• Intercepting funds owed to the company   
• Recovering cash from the company’s premises  
• Preventing the sale or transfer of property until the debt is paid

If those efforts are unsuccessful, HMRC can start insolvency proceedings and potentially force the company into liquidation.  

What if I can’t make a Time to Pay Arrangement for PAYE debts? 

If you are refused a Time to Pay Arrangement for PAYE debts, don’t panic, as there are still several other options you can explore. 

Seek short-term funding

If your company has a relatively low level of debt and is otherwise viable, short-term finance could be a solution. You may be able to access a loan or line of credit from the bank, but if not, there are other funding methods that can provide a quick cash flow boost.

Invoice finance enables you to release the cash tied up in unpaid customer invoices. Alternatively, asset-based lending is an option if your company is asset-rich but cash-poor, as it allows you to borrow money against assets such as vehicles, machinery and stock.  

Consider a Company Voluntary Arrangement (CVA)

If a PAYE bill is one of several debts you cannot pay, a Company Voluntary Arrangement could be an appropriate solution. A CVA is a formal insolvency procedure that allows you to repay multiple debts via a single monthly payment over a typical period of three to five years. 

You will need an Insolvency Practitioner to set up and manage the arrangement on your behalf. However, once it is in place, all charges and interest on your debts will be frozen, and as long as you keep up with the agreed payments, any remaining unpaid debt at the end of the CVA is typically written off.

Restructure via Administration

If the company is experiencing cash flow problems, has profitability issues and is under severe pressure from its creditors, Administration might be worth exploring. It provides an initial eight-week period of legal protection from creditors, allowing a licensed Insolvency Practitioner to develop a recovery or restructuring plan.

A company in Administration can leave the process in several ways, depending on its financial position and the Insolvency Practitioner’s plan. That includes:

• Selling the business and assets as a going concern
• Renegotiating contracts or streamlining operations to restore viability
• Entering a Company Voluntary Arrangement (CVA) to repay debts over time

If recovery isn’t possible, the company may instead move into liquidation, where the remaining assets are sold to pay creditors and the company is closed.

Close the company and walk away

Sometimes, being unable to pay a PAYE bill is just the tip of the iceberg. If your business has large debts and is no longer profitable, the most sensible option is usually to close it down.

You can do that using a process called Creditors’ Voluntary Liquidation (CVL). A licensed Insolvency Practitioner handles the process, selling the company’s assets and using the proceeds to repay as much debt as possible. Any remaining debts, including PAYE liabilities, are usually written off when the company is formally closed.

As a director or shareholder, the company’s debts generally do not pass to you personally. You may also be eligible for director’s redundancy pay, which can provide some welcome financial support.

Are you struggling to pay a PAYE tax bill?

If your Scottish company cannot pay a tax liability, contact our licensed Insolvency Practitioners right away. We’ll review your situation, explain your options, and, if the company is no longer viable, guide you through a low-cost, orderly liquidation. Get in touch for a free consultation or arrange a meeting at one of our offices in Scotland.