Reviewed 12th February 2024
Most companies put money aside to pay their PAYE, VAT and Corporation Tax bill. But what happens when you’re forced to spend that money on something else, or your bill is unexpectedly large and you cannot afford to pay what you owe?
If you find yourself in this predicament, you need to act fast. Late payment penalties and interest charges mean the longer you wait, the more you’ll have to pay. HMRC also has a powerful range of enforcement measures, so it’s not the sort of creditor you want to have. Fortunately, you do have some options.
If you cannot pay your tax bill when it’s due, HMRC will take escalatory action, starting with late payment penalties and interest charges. If you continue not to pay, HMRC may issue you with an Attachment Order (Notice of Distraint in England), which gives it the power to send a bailiff to your business premises to seize company assets to sell at auction and cover the debt.
If you still cannot settle the debt and you owe more than £750, HMRC may issue you with a Statutory Demand, which is the first step in winding up your company. If you do not pay the demand within 21 days or challenge it within 18 days, it’s presumed the company is insolvent and cannot pay its debts. HMRC can then issue you with a Winding Up Petition to have the company liquidated by the court.
The best thing you can do if you’re struggling to pay your tax bill is to be proactive and contact HMRC at the first sign of a problem. Ideally, this will be before you miss the payment deadline. Having a clear conversation with HMRC about your financial situation will help to guide your next steps.
What you shouldn’t do is ignore the debt and hope it will go away. It won’t. HMRC petitions to wind up more limited companies than any other creditor in the UK and this is something it will do if it believes you’re trying to avoid paying your tax liability.
There are several different steps you can take. The right one for you will depend on your company’s record as a taxpayer, its financial position and its future viability.
Explore extra funding
Your business may be cash poor but you could have physical assets that you can borrow against, such as vehicles, machinery or equipment. You can also borrow against intangible assets like unpaid invoices.
If you’re waiting for a payment from a customer, invoice finance can release 90% of the value tied up in that invoice within 48 hours. More conventional finance options, such as a bank loan, may also be worth exploring.
Make a Time to Pay (TTP) arrangement
If you contact HMRC quickly it may be willing to give you more time to pay. You’ll need to convince HMRC of your company’s ability to pay your outstanding bill via monthly instalments while keeping up with your current tax obligations. If you’re successful, you’ll be able to pay what you owe over a typical period of three to six months.
Negotiating with a Time to Pay arrangement can be daunting but you don’t have to do it yourself. We can act as a third-party intermediary and make a repayment proposal to HMRC on your behalf. Our experience in negotiating with HMRC and understanding its requirements will give you the best possible chance of success.
Consider a Company Voluntary Arrangement (CVA)
If you’re unable to negotiate more time to pay, another potential solution is a CVA. A Company Voluntary Arrangement is a formal agreement with your creditors to make a reduced repayment over a set period, typically three to five years. That will allow your creditors to recoup more of their debt than if the company was liquidated.
If 75% (by value) of your creditors accept your CVA proposals, interest on those debts will be frozen and all creditor legal action against you will cease. As this is a formal insolvency procedure, you will need to appoint an insolvency practitioner to put a CVA in place.
Enter Company Administration
If you cannot make a repayment arrangement, another option is to appoint an insolvency practitioner to put your company into Administration. That will start an eight-week moratorium, which suspends legal action from creditors, including HMRC, while the insolvency practitioners put a rescue plan in place. The company may exit the Administration through a CVA so it can continue trading while repaying its creditors.
Creditors’ Voluntary Liquidation (CVL)
If the company cannot make a repayment arrangement and is no longer viable, liquidating it voluntarily through a Creditors’ Voluntary Liquidation could be an effective last resort. As part of the process, the assets of the company will be sold and the proceeds will be used to repay the creditors as far as possible. Any remaining debts will be written off and the company will be closed down.
Although a CVL brings an end to the business, it’s usually preferable to being closed down by HMRC via a Compulsory Liquidation.
As the director of a limited company, you are a separate legal entity from the business itself. Therefore, in normal circumstances, you will not be liable for the tax debts of the company if the business fails. However, there are some exceptions.
An insolvency practitioner is legally obliged to investigate your conduct in the period leading up to and during the company’s insolvency. If they find examples of misconduct, wrongful trading or fraudulent trading, the tax debts of the company could pass to you. In that case, your personal assets could be at risk and you could even be forced into sequestration if you cannot pay.
If your company is struggling with an unmanageable tax bill, we can help. We’ll discuss your company’s financial situation and tax liablities with you and help you find the best way forward. Contact our business debt experts for free, same-day advice.
Our debt report is completely easy to use and is a great starting point for anyone with over £5000 of debts looking to take control of their debt issues. By providing us with details of your incomings and outgoings we can suggest the most appropriate way forward for you.
Levels of unsecured debt in Scotland increased dramatically during 2022 as the cost of living crisis took its toll on household finances.
Close to half a million Scots are in a position of profound financial hardship, according to a new set of figures.
Disabled people in Scotland are being urged by the government to check whether they might be eligible for benefits that could help make their life a little easier.
2 Bothwell Street, Glasgow, G2 6LU
We'll give you a call
Our Scottish based team can help advise you on your debt problems.
Meet our qualified Scottish based team
100% Confidential advice
Our Insolvency Practitioners are regulated by ICAS or the IPA and our firm is authorised and regulated by the Financial Conduct Authority
Fees and Information: There are fees associated with our services. These will be fully explained before entering into any of the personal debt solutions referred to on this website. Full details of our fees and how these are charged are fully explained to you prior to you committing to any particular service.