HMRC Bill (1)

HMRC Debt Problems?

HMRC tax debts are amongst the most common arrears facing businesses in the UK. As a result, there is a lot of helpful advice for taking action and addressing these debts in an appropriate way. 

What is HMRC Debt?

HMRC debt is an amount of arrears that mount up when a business is unable to pay PAYE, National Insurance, or VAT taxes. Left unresolved this can cause severe and irreversible damage to a company, so the best course of action is seeking advice before the problem escalates.

How do I get in touch with HMRC?

Much like most branches of the UK Government, HM Revenue and Customs (HMRC) is split into departments which handle various matters relating tax and wage regulation.

If you need to contact HMRC it is important to contact the right department to help with your query. You can assess exactly who you need to speak to by identifying the department on any correspondence (letters, etc.) or by doing research into the departments and their responsibilities.

HMRC also has a list of departments and contact information posted on the UK Government website, to help people get in touch with the right departments.

What can I expect?

Tax payments (in multiple forms) are a legal requirement of both companies and individuals in the UK.

If your company has failed to make tax payments, HMRC will take action against you to collect the payment. This typically follows a standard process involving multiple methods for the collection of unpaid debts.

Phase 1: Threatening Letters

Once debts have mounted, HMRC will send correspondence to companies in order to instigate action from them to resolve these outstanding arrears. These letters often cause stress and uncertainty to Directors, as this is their exact intention; alerting the company of the consequences should they fail to respond appropriately.

Once you have received one of these letters, it is time to take action.

Ignoring these letters will often cause the situation to accelerate at a higher speed than if addressed and acknowledged. Engaging with HMRC and addressing any issues and hurdles for paying tax is likely to prevent a situation from disintegrating further. HMRC much prefer the knowledge that a company is attempting to rectify its financial situation as opposed to a total lack of response. A willingness to co-operate and pay what you can, will make HMRC aware that you are being proactive about the situation and may delay your case being escalated further.

Phase 2: Debt Collection Agencies

When there is no response from a company and debts continue to accumulate, HMRC will appoint the assistance of a debt collection agency to oversee the next stage in the process. This agency will contact you informing you of the intention to proceed with debt recovery through bailiffs. These agencies are legally duty bound to send correspondence ahead of progressing with any debt recovery processes and should they arrive at the premises they are not permitted to enter unless permitted by members of the company.

Phase 3: Distraint Warrants/Enforcement Notices

If a company continually fails to make payments despite the threat of action, HMRC will issue a ‘Warning of Enforcement Action’. This is a warrant which enables HMRC to seize all available, non-essential assets (with a period of 7 days) and auction these to contribute towards debts.

Immediate action is the best course of response to any enforcement notices. Time is not on your side as a company, and if situations are not addressed HMRC will proceed with any seizure of assets within 7 days of issue.

Phase 4: Legal Action

After these attempts at recovery, HMRC will then proceed with legal action, in the form of a county court case or statutory demands. The action taken and the deadline for response will vary depending on the severity of debts, but any legal action must be confronted appropriately.

Phase 5: Notice of Requirement (NOR)

If a company is insolvent, or HMRC believe this to be the case a NOR is a strong legal tool they can and will use to guarantee repayments. This tool (NOR) acts as a security bond between HMRC and the company and is used against VAT and PAYE debts.

Company Directors, named members of the company or sometimes both, can be held responsible for these company debts under a NOR and financial obligations must be met prior to the stated deadline. It is a criminal offence if a company attempts to trade or is found to be trading after this deadline, which carries harsh consequences including fines of £5,000 for each instance.

If a company wishes to appeal HMRC’s decision to deliver a NOR they must do so within 30 days of issue, with the appropriate proof that HMRC have wrongfully judged their financial situation. If not actioned within this 30-day period, a business will be found legally culpable for all attempted or continued trading past the deadline and expect to receive one or more fines depending on the circumstances.

If you find yourself tackling a NOR it is important to contact a registered Insolvency Expert immediately, as these processes are extremely time sensitive.

Phase 6: ‘Winding Up’

If a company fails to respond to continued action taken by HMRC they will serve the company a Winding Up Petition through the courts.

The courts will deliver an official Winding Up Petition, with the intent of forcing the company into closure. An extremely time sensitive matter, a Winding Up Petition allows a company up to 7 days to respond pro-actively before HMRC publish a notice in the London Gazette. At which point all company assets and bank accounts will be forcibly frozen and no company assets can be sold or transferred.

Once this order is served, court proceedings will take place and the process is irreversible, and the company may also be at risk of adding legal fees to their current debts. Other creditors can also use this petition to seek payment through the same order/petition and if the debts exceed a total of £50,000 the High Court will manage proceedings.

This type of legal action is amongst the most serious for a company facing debt concerns, and action is imperative if you find yourself in this position.

If you are concerned about threats to your company, please get in touch with expert Insolvency Practitioners such as our team at Insolvency Advisory and seek advice for your unique circumstances.

Is my Company being Investigated? How Can I Tell?

If HMRC have reason to believe there are inconsistencies with your tax payments they will allocate a member of the relevant department to initiate a further investigation. The tell-tale sign of this is a HMRC letter indicating the nature of the inconsistency and the process involved in investigating this matter.

If you receive a letter like this co-operation is key. If you are concerned about your options or what this may mean for your company seek the advice of a Business Recovery Expert or Insolvency Practitioner immediately to discuss the most appropriate actions for your company to take.

Is there a Timeframe for Investigation?


Typically, HMRC will investigate a period of 4 years leading up to the investigation. If they feel the company has been able to pay tax but acted irresponsibly, they may extend this window to 6 years.

In severe cases of fraud and misconduct HMRC may investigate a company and its individuals for a period of up to 20 years to identify any and all instances of fraudulent or intentionally evasive conduct.

What can I do?

Time to Pay Arrangements

These are agreements entered into by both HMRC and the company themselves. This agreement is a structured payment of any tax arrears, agreed over a proposed period of time. Time to Pay Arrangements (TTP) can be difficult to obtain from HMRC, however the COVID-19 pandemic and the impact this has had on businesses has made these easier to obtain in recent months.

There are several factors which may affect a business’s likelihood of obtaining or qualifying for application of a TTP.

Compliance is a major factor. HMRC is likely to assess a company’s file to date. They are more likely to reward a company which has consistently complied with tax obligations and poses a higher potential of meeting the terms of agreement.

Market or business nature are also likely to impact a company’s success in securing a TTP. Industries which are considered more volatile will represent a greater risk to HMRC, limiting the chances of eligibility.

Finally, as with most payment plans if a company has proven a reliance on TTP before, it may negatively impact a repeat offer of a similar agreement.

To negotiate a TTP companies must approach HMRC with ample evidence supporting their ability to honour the proposed obligations. Financial information relating to expenses, and income will enable HMRC to gain a better insight into the financial position of a company and whether they feel the company are able to quality for a TTP.

Communication is key when attempting to negotiate a TTP and while there are no set criteria that guarantee acceptance, providing sufficient evidence and being pro-active with your approach will benefit the process.

Company Voluntary Agreement (CVA)

A CVA is an official proposal which outlines a potential payment agreement devised by a company and their appointed IP, inclusive of proposed debt repayment terms for all outstanding creditors. The company approaches creditors with this proposal as means of repaying their outstanding arrears within a 5-year period (maximum). This allows a company to fulfil their financial obligations appropriately, over a period of time rather than paying the full amount in a lump sum. This is a recovery option for companies who are in financial difficulty, facing insolvency and wish to restore the company to a profitable state.

The catch with a CVA is that agreement on all terms is needed from a majority of outstanding creditors before it can be approved (75%+). Without this agreement the proposal will be rejected, and other solutions must be considered to recover the business.

Creditors Voluntary Liquidation (CVL)

This option allows struggling companies a somewhat ‘safe exit’. If a company Director or its shareholders have established an inevitable break down, they can initiate a Creditors’ Voluntary Liquidation (CVL)

This process dissolves the company entirely, selling off any company assets and distributing the revenue from this amongst any creditors. The benefit of this being that Directors are able to rectify the company debts that are not personally guaranteed.

If your company has financial obligations it cannot afford to pay, a CVL may be a beneficial option. It allows directors a route out of the company and its pressures, while also fully addressing company debt.

CVL is best considered a last resort, but if you feel this process is suited to your business position get in touch with our team today to discuss appropriate options and routes.

If you have concerns about your company’s ability to pay outstanding HMRC debts get in touch with us for immediate, personalised advice on the options available to you.

We are here to help. Contact a member of our team today to book your no obligation consultation and take the first step in the right direction.