What Options Does a Company Have If It Cannot Pay HMRC?
Running a business in the UK comes with various financial obligations, and one of the most significant is paying taxes to HM Revenue and Customs (HMRC). If your company finds itself unable to pay its tax liabilities—such as VAT, PAYE, or Corporation Tax—it can be a stressful and daunting situation. However, it’s important to know that there are options available. The earlier you act, the more choices you’ll have, including possible routes through formal insolvency procedures.
In this blog, we explore what steps a company can take when it cannot pay HMRC, and how insolvency might play a role in resolving financial distress.
- Communicate Early with HMRC
The worst thing a business can do is ignore tax debts. HMRC is more likely to work with companies that are open and proactive. If you’re struggling to pay your tax bill, contact HMRC as soon as possible. You may be able to negotiate a Time to Pay (TTP) arrangement, which allows you to spread your tax payments over a period of up to 12 months (sometimes longer in exceptional circumstances).
To qualify, HMRC will assess your company’s financial position and your ability to meet the proposed repayments.
Key benefits:
- Avoids immediate legal action
- Protects your business cash flow
- Keeps your business trading
- Assess the Financial Health of the Business
If tax arrears are just one of many financial issues your company is facing, it’s worth taking a step back and evaluating your overall position. Ask questions like:
- Can we afford to pay creditors, staff, and suppliers on time?
- Is cash flow temporarily strained or is the business fundamentally insolvent?
- Are our debts growing faster than income?
If the answer suggests long-term or systemic financial trouble, it may be time to seek professional advice and consider insolvency options.
- Formal Insolvency Options
If your company is insolvent—meaning it can’t pay its debts as they fall due or liabilities outweigh assets—there are several insolvency procedures that may help. These aren’t always the end of the road; in some cases, they offer a way to restructure and survive.
- a) Company Voluntary Arrangement (CVA)
A CVA is a legally binding agreement between your company and its creditors to repay debts over time—usually 3 to 5 years.
Benefits:
- Your company can continue trading
- HMRC and other creditors are bound by the agreement
- Stops legal action and interest accumulation
A licensed insolvency practitioner must propose and supervise the CVA. HMRC is often a key creditor in CVAs, and their support is crucial.
- b) Administration
Administration is a formal insolvency process where an insolvency practitioner takes control of the company to either:
- Rescue the company as a going concern,
- Achieve a better outcome for creditors than liquidation, or
- Sell company assets to repay debts.
This process offers legal protection (a moratorium) from creditors while a plan is formulated. It can buy valuable time for restructuring or selling the business.
- c) Liquidation (Creditors’ Voluntary Liquidation – CVL)
If there is no viable way to save the business, liquidation may be the best option. In a CVL, a licensed insolvency practitioner winds up the company, sells its assets, and distributes the proceeds to creditors, including HMRC.
Note: Directors must act responsibly to avoid wrongful trading, which could result in personal liability.
- Seek Professional Advice
Tax arrears are a red flag of financial distress, and HMRC can take enforcement action—such as issuing a winding-up petition—if the debt remains unpaid. Seeking help from a licensed insolvency practitioner (IP) or turnaround specialist early on increases your options and helps you avoid personal risk.
- What HMRC Can Do If You Don’t Act
If your company ignores tax debts, HMRC has several powers to enforce payment:
- Issue a statutory demand
- Seize assets through distraint
- File a winding-up petition to close your company
These actions can happen quickly and with serious consequences, including freezing your bank accounts and reputational damage.
Final Thoughts
While it’s never easy to face up to tax debt, doing so early opens doors to practical solutions. Whether it’s negotiating with HMRC, entering a CVA, or winding up the company in a controlled manner, there are formal processes designed to deal with financial difficulties. Insolvency isn’t necessarily failure—it can be the first step toward a fresh start or a more sustainable business future.
Remember: Acting early is key. If your company cannot pay HMRC, speak with an insolvency professional without delay. Keywood Group is an independent firm of Licensed Insolvency Practitioners based in Birmingham and London, specialising in providing confidential and expert advice on all aspects of corporate insolvency.
