What happens if I can’t pay my tax bill?
You might struggle to pay HMRC for several reasons. In this article, we’re answering the question – what happens if I can’t pay my tax bill?
Businesses have faced many challenges over the last few years. Due to the pandemic, there have been material shortages, price increases and country-wide lockdowns, which businesses have had to manage.
Corporation tax, VAT, and PAYE are all common HMRC arrears that a business may have. HMRC or HM Revenue & Customs are responsible for collecting these from businesses on specified dates throughout the year.
Failing to pay HMRC debts when they fall due as a company director could land you in trouble. This may include fines, interest, bailiffs and legal action if the debt remains unpaid. This is not something you want to be dealing with while trying to manage a business.
What happens if I can’t pay my tax bill?
You’re not alone if you are struggling to pay your tax bills. We understand the stress and anxiety that tax problems can cause, and we can provide you with honest advice based on your circumstances.
We advise you to contact HMRC and inform them that you are struggling to make the payment. We know it’s easy to ignore the problem, but if HMRC doesn’t know that you’re having difficulties paying, they will continue to ramp up the pressure. Additionally, find out what happens if you don’t pay your bounce-back loan.
HMRC: Can I pay instalments?
Some directors may be eligible to pay their tax arrears in instalments. This is called a time-to-pay arrangement and is only available for some business directors.
Time to pay HMRC
For those struggling to make HMRC tax payments on time, you may be able to get a time-to-pay arrangement. This repayment plan is usually offered to directors who have contacted HMRC early regarding their inability to pay.
To be offered a Time to Pay arrangement, you may need to:
- Have filed your latest tax returns
- Be able to pay off the outstanding tax bill and debt within the next 12 months (or less than a year)
- Be able to keep up with current HMRC bills
If you meet these criteria and are struggling to pay, contact HM Revenue & Customs as soon as possible. Calling them can take some time, so make sure you are prepared for this.
Make sure that you have all reference numbers and important details to hand before the phone call. If you cannot provide information, they will not be able to help you, and you’ll have to start the whole process again.
To qualify for time-to-pay arrangements, HMRC may ask you some questions about your business. These can include:
- Is your business viable?
- Will you be able to keep up with the payment plan?
- Have you considered using a loan or credit card – we would recommend the answer being ‘no, I cannot raise the money’
A time to pay takes the pressure off you and means that if you can keep up with the instalment plan, you won’t incur any further penalties. You will pay more tax over time than if you had paid it as a lump sum due to interest charges. Paying a little more appeals to many directors due to the relief of creditor pressure.
You’ll have access to your payment plan online, which means it can be accessed at any time to see how much tax you have left to pay. If HMRC agrees that you can afford the tax debt, you must ensure it is paid within their time limit. Failing to pay on time could lead to late payment penalties or further enforcement action.
What happens if you can’t get a Time to Pay arrangement?
A time-to-pay arrangement won’t be available for everyone. Those who have struggled to make payments previously or who have failed to inform HMRC early enough about money problems may not be eligible.
If you cannot negotiate a payment arrangement with HMRC, you may need to look into a more formal approach. A company voluntary arrangement or CVA is an option that allows businesses to restructure their debts over a longer period, typically five years.
A CVA allows you to continue trading while paying legacy debt out of future profits. To benefit from a CVA, you must get advice to check if it is suitable for you and also assess how likely your creditors will be to approve it.
If a CVA is not suitable, you may need to consider closing the business down via a Creditors Voluntary Liquidation.
What happens if you don’t pay HMRC penalty charges?
If you fail to pay your tax bill, you may end up in trouble, particularly if you continue to ignore their requests to pay tax. In the first instance of delayed payment, HMRC will send you letters as reminders. As time goes on, these reminders may turn into fines and visits until you pay the tax owed.
HMRC don’t give up. Their job is to collect the money you owe in taxes, which is very important. Failing to pay HMRC can land you with some severe fines. Additionally, you will be required to pay interest on all of these fines. This means that the longer you fail to pay, the more you will owe.
Enforcement action: Bailiffs and taking your goods
Not paying HMRC can leave you at risk of bailiffs turning up and removing goods. Bailiffs can turn up at both your business address and home address. Upon visiting, they will make a note of any assets they believe are owned by the company. A company’s assets typically include stock, machinery, vehicles and more.
It’s likely that these bailiffs will return and take the goods from your premises. The goods will be sold to try and make up some of the money that you owe to HMRC. In some cases, a controlled goods agreement can be made. This means they will remove the assets and hold onto them, giving you seven days to make the payment.
If you do make the payment, the goods can be returned. If you fail to make payment, the goods will be sold. Bailiffs may also take money directly from your wages or pension.
Winding up petition
HMRC will only try to recover business debts for so long until they decide enough is enough. At this point, they will attempt to forcibly wind up the company. This is very serious and is not what you want.
After receiving a winding-up petition, your business bank account will be frozen, and you will receive a court date to attend. In addition, you may have to pay the court fees, HMRC’s costs, and the tax debt you already owe.
If you fail to clear the company’s tax debt before the court action, your business will be wound up. This means that you will be forced into compulsory liquidation. A compulsory liquidation should be avoided at all costs as it can lead to you being at more risk as a director.
I’ve woken up to a HMRC bailiff at my door
Waking up to a HMRC bailiff at the door can be incredibly scary, not just for a director but for the family too. HMRC may request that a debt collection agency visit your property to recover your tax debts.
Regardless of what stage you’re up to with HMRC, there’s still time to be honest. Explaining your situation can provide more options for you. It may also provide some relief from debt collection agencies.
If your business might be becoming insolvent, you are best seeking debt advice from a licensed insolvency practitioner. They can give you honest advice, which means more options will be available for you.
We know how tough it can be when dealing with business debts. We always advise dealing with issues like this head-on and not burying your head in the sand.
What to do if you have difficulties paying HMRC
HMRC is one of the largest creditors in the UK; therefore, it’s unlikely that fines and legal action will be dropped. The best thing to do is deal with the issue. As soon as you believe that you may struggle to pay HMRC, tell them.
You can phone HMRC and let them know that you are struggling financially and may not be able to make the payment on time. Before you call, it’s a good idea to have an estimation of when you may be able to pay. This means you can tell them by saying, ‘I can’t pay my tax bill this month, but I can revisit this next month and see if I can make the payment then.’
HMRC may allow this, or they may lower the amount that is due for the current month and spread your payments over a longer period. For a director who has always paid bills on time, it’s unlikely that HMRC are going to expect you to struggle.
This would be suitable for a director who knows they are going to receive a larger payment in the coming weeks. Seek professional advice if you believe your business may be becoming insolvent. Getting advice early provides you with more options further down the line.
Whatever the outcome, it’s always best to be honest rather than burying your head in the sand and hoping it will go away because HMRC won’t give up.
I can’t pay HMRC anything – what do I do?
If you know that you cannot afford to pay HMRC anything any time soon, a voluntary liquidation may be the best option for you. In a liquidation, all business debts to HMRC, including VAT, PAYE, and Corporation Tax, are written off. This provides you with a fresh start and removes pressures.
At 1st Business Rescue, we have a wealth of knowledge regarding HMRC and limited company closure. We can provide free, confidential advice regarding your financial situation and assess your options going forward.
We are honest in our approach to ensure that there are no surprises later down the line and tailor all advice to support you as the director. Feel free to get in touch for more information and advice if you can’t pay your tax bill.
Can’t pay my tax bill FAQs
What options are available if I can’t pay my tax bill?
If you can’t pay your tax bill, you may be able to organise a ‘Time to Pay’ arrangement. This allows you to pay your bill over a set period of time. It can help to give you breathing space when your business is struggling financially.
Will I be charged interest and penalties if I can’t pay my tax bill?
You will be charged penalties and interest if you can’t pay your tax bill. You will need to contact HMRC and let them know that you are struggling to pay your bill. They may be able to offer you some relief.
What happens if I ignore my tax bill and don’t pay?
HMRC are one of the biggest creditors in the UK, which means you’re very unlikely to be able to get away from them. In the first instance, they may contact you over the phone, by email or by letter. If you continue to ignore their communications, you will likely be visited by the HMRC bailiffs. Find out about how to deal with bailiffs.
Can I seek professional help for managing my tax debt?
Yes. If you’re struggling to manage your tax debt, you need to seek professional advice. A reputable company will be able to help you organise your cash flow to reach a better outcome.
I'm Chris Worden, Managing Director at 1st Business Rescue. With over 7 years of experience, I help UK directors navigate the complex world of UK corporate insolvency. We offer free and independent advice to UK directors and advise them about what options may be available to them if their limited company starts to struggle.
I am passionate about helping other directors overcome their business challenges and get back on their feet, as I was once in the same position as them. I had a business that became insolvent, and the advice out there was confusing and overwhelming. I am here to provide honest and valuable advice to UK directors.
I am proud to say that we are one of the only 5-star corporate insolvency companies on Trustpilot with hundreds of 5-star reviews, and we publish videos weekly on our YouTube channel. Our channel is designed to educate UK directors about insolvency and debt advice. Check it out here: