Dealing With HMRC Company Debt

Written by John A Waller. Consultant June 11th, 2024.

Dealing with HMRC company debt is important. 

HMRC debt, whether it’s income tax, National Insurance or VAT arrears, must be sorted out as soon as possible. HMRC debts are priority debts. If you do not pay, there can be serious consequences, including a court order and the use of debt collection agencies and bailiffs.

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How long can HMRC chase a debt

If HMRC launches an investigation into you or your business finances, they can pursue a debt of up to 20 years. However, the standard timeframe for an investigation is four.

So, dealing with HMRC’s debt remains, therefore, crucial.

When you started a limited company, directors should set aside a significant creditor, HMRC, as part of their business plan.

Directors must ensure they meet HMRC requirements as HMRC are tenacious when wishing to recover the debt owed to them.

Regularly check for changes in tax matters, in particular employee tax. SO DO NOT FORGET to register for VAT if you know your business will exceed the current threshold of £85,000 per year.

Many company directors however ask: ‘I can’t pay VAT what happens next?

Make sure the company’s books are in order, monthly management accounts are prepared, and if not ask for an explanation why not. Not knowing that as a director is not a defence. Therefore, responsibility lies strongly with the directors, especially in HMRC matters.

Distraint In Northern Ireland

HM Revenue and Customs  can take possessions you own, and sell them to pay your debt. This is called  ‘distraint’ in Northern Ireland.

Receiving a VAT Notice of Assessment tax 

If you cannot pay your VAT bill, HMRC sends your company a “notice of assessment” detailing an assessment of VAT, as no VAT return is received. HMRC allows 30 days either to pay the assessment or to make a return.

However, not being in a position to pay does not mean you do not submit a return.

If you cannot pay HMRC the tax you owe, it is essential to be efficient and practical about your options. VAT money is government money collected by the party registered for VAT. Therefore, when not paid, the VAT office takes a dim view, pursuing those in arrears with great tenacity.

Your priority should be communicating with HM and Revenue; as options remain available, act quickly. How you approach, HMRC is important. Directors need to act honestly at all times. So, ensure you have: –

  • Companies VAT number;
  • The reason your company is unable to make payment;
  • An accurate, realistic, achievable cash flow forecast;
  • The turnover and expenditure of your business;
  • List of company assets with realisable equity; business;
  • Your plan to ensure the company can pay the VAT liability?

Contacting HMRC Debt Management and Banking Team

If you would like to contact HMRC’s dedicated debt management and banking team, contact details are as follows.
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If you need help understanding the best way forward for your company, we can provide confidential free initial advice. You can book a free virtual meeting or call us on 0800 612 5448..

HMRC Debt – Tax owed to HM Revenue and Customs.

Let’s assume the HM Revenue and Customs (HMRC) have sent you a demand for the tax you cannot pay. It is then crucial to contact them to make a settlement plan as quickly as possible. Failure to do so therefore triggers the HMRC to instruct proceedings.

How Long Does HMRC Chase Debts For?

The Limitation Act 1980, s 37, stipulates no time limit before HMRC is obliged to pursue tax debt once an assessment or request is made. Further, s 9 and s 24 of the Act apply a six-year limit for NICs. DMB chased old debts, issuing letters to unpaid taxpayers.

Ensure You:

  • Control company debt;
  • Avoid Court proceedings with HMRC;
  • Pay VAT due – Pay your VAT on time – avoiding interest and penalties;
  • Avoid late VAT payments;
  • Evade HMRC recovery process or any form of recovery action;
  • Deal with HMRC on time – Do not avoid them;
  • Ensure you account for and pay corporation tax as due;
  • Do not let a tax or VAT liability build up – If in trouble, seek help from an insolvency practitioner;
  • Do not hide unpaid VAT.

Direct recovery of HMRC debts

HMRC has the ability to take the money you owe directly from your bank or building society account without your permission through a process called ‘‘direct recovery of debts’.

Tax Credit Overpayment

HMRC Tax Credit Office will write to you to advise you have been overplayed tax cedits and how to repay the tax credit debt.. If you think this is in error then please contact call the helpline.

If you are still receiving tax credits or have recently started receiving Universal Credit, the outstanding amount you owe will usually be taken out of your future payments.

If you are no longer eligible for tax credits and you do not receive Universal Credit, you will have to make payments directly to HM Revenue and Customs (HMRC). If you do not repay HMRC on time, they may take the money from you in another way

Dealing With HMRC Company Debt – 2018 Budget

In the 2018 budget however, HMRC’s proposed status would change in April 2020.

However, the current pandemic has changed the circumstances. Do we await the outcome?

HMRC is the one creditor that gives most company directors nightmares. They fear collectors demanding payment. Other creditor pressure appears insignificant once the HM Revenue appears at your door.

HMRC is perhaps the one creditor company directors ignore when cash is tight, but they are the most diligent collectors.

Revenue has plans for serial late payers and defaulters. So the net is closing. However, remember, the pandemic is putting the country in massive debt.

Therefore, we can help you solve your problems with HMRC or restructure your business with a clear head.

At HBG, we are here to help with HMRC tax debt problems.

Companies are falling into debt with HMRC every day. Many will not be able to pay HMRC on time. Indeed, they fear dealing with HMRC. However, we forget that they act for the public.

HMRC is interested in listening and trying to help. However, they want the facts.

Dealing with HMRC Debt Collectors

If you get a tax bill from HMRC that you can’t pay, you should contact them immediately to work out a payment plan.

Do so successfully, and you can nip this problem in the bud. However, if HMRC refuses to offer you a ‘Time to Pay Arrangement’, HMRC will commence proceedings to recover the outstanding tax if you fail to pay it. The risk of such action by HMRC could mean the closure of your business.

HMRC will probably therefore charge you interest and penalties if you don’t pay your bill. If you still can’t pay the debt you owe, and HMRC won’t agree to a payment plan, you could get a letter from HMRC’s debt collectors.

HMRC – Debt How long will HMRC give me to pay?

Each department has different criteria.

The most important thing is to make contact quickly.

However, we are not aware of time scales, but:-

If you are unable to secure payment due to the CORONAVIRUS (COVID-19)?

Make sure you contact HMRC Coronavirus (COVID-19) Helpline if you cannot pay other tax bills.
Then, ensure you make notes, including date, time, whom you speak with, and your discussion details.

Dealing with HMRC company debt if Self-Employed?

And the coronavirus then affects your business (COVID-19), and then claims the Self-Employment Income Support Scheme.

If you do not meet the criteria and owe less than £10,000, you may qualify for a time-to-pay Arrangement online?

Contact the Self Assessment helpline if you missed your payment.

Self Assessment Payment Helpline
Telephone: 0300 200 3822
Monday to Friday, from 8 am to 4 pm.

Are you dealing with HMRC Company Debt – Unable to pay Other Taxes To HMRC?

Sometimes HMRC can offer you a time to pay if you cannot pay other taxes.

If you have received a payment request, contact the office as described in your letter. Failing which,
Call the:

Payment Support Service (PSS)

The Payment Support Service (BPSS) is the HMRC helpline to negotiate instalment terms for tax debt nearing payment, but the taxpayer cannot fully pay by the due date.

The helpline number for Business Payment Support Service (BPSS) is:

Payment Support Service
Telephone: 0300 200 3835
Monday to Friday, from 8 am to 4 pm.

Nominated partners in business partnerships may negotiate a Time to Pay Arrangement with HMRC on behalf of the partnership or individual partners.

Dealing with HMRC company debt – What should you do?

Ensure you secure immediate contact; therefore, with the HM Revenue and Customs when you miss your payment. How you contact HMRC depends on what you need to pay. Read management support below, which should help find the exact point of contact.

However, you may incur interest due to late payment. Avoid penalties by contacting HMRC as soon as possible, noting the time and date with whom you spoke.

Let the HMRC know you are serious in wanting to resolve your situation honestly.

Dealing with HMRC company Debt – Management support

  • Unable to pay the forthcoming Tax Bill;
  • HMRC may offer part payments for due tax;
  • Time to Pay (TTP) plan;
  • Instalment plan;
  • Business Payment Support Service (BPSS) is the point of contact before the tax due date;
  • Self Assessment Payment Helpline is for when you missed the deadline, and you are under self-assessment;
  • Large Business Unit Time to Pay (TTP) plans in place for those taxpayers who are under Large Business Service (LBS) and use the Large Business Unit (LBU);
  • Large Debt Unit is for indirect tax debts of £150,000 or more;
  • A TTP plan needs to be supported by realistic, achievable figures. Remember, it is not there to drag payment out with no attainable end;
  • Seek professional help as the HMRC sees through weak plans.

Dealing with HMRC company Debt – Is support available with HMRC Debt?

Support handling HMRC Debt in the UK.

  • Citizens Advice – Help for personal and business tax problems. – 03444 111 444;
  • Business Debt line – Support for self-employed people across the UK with debt and money management issues. – 0800 197 6026;
  • TaxAid0345 120 3779;
  • Advise UK – 0300 777 0107.

I can’t pay HMRC?

HMRC VAT Debt Management Letter

Example of HMRC Letter

When a limited company director discovers they have issues with their payments, this may indicate the company is insolvent; therefore, it requires attention.

So ensure you speak to one of our Insolvency Practitioners, who can help with your crown debt problems on 0330 056 3120.

Tax offices provide Self Assessment Payment Helpline, to help businesses in financial arrears. It’s offered the opportunity to negotiate instalment terms for an individual’s tax arrears while under self-assessment tax.

 HMRC DEBT Self Assessment Payment is 0300 200 3822.

Closing a limited company with debts to HMRC

Depending on the financial situation, if a limited company. Options are available.

Suppose you wish to close the company for good. You may use the following insolvent procedures:

If you want to maintain the company:

During Coronavirus Crisis, paying HMRC Debt – VAT

HMRC had deferred VAT payments for three months ending June 2020.

Any deferred UK VAT remains due 2021 – dates vary.

VAT not paid during the period is paid by the 2020/21 financial year, which ends on March 31st 2021. The same date as all UK monthly VAT payers. But the time for quarterly VAT payers, their VAT filing deadlines will determine the majority, so: March 31st 2021; April 30th 2021; or May 31st 2021.

  • There has been no mention of interest charges on deferring VAT.
  • No allowances are in place for businesses with special schemes, Eg: annual VAT payment.

Contact HMRC and join the VAT deferral new payment scheme.

The VAT deferral new payment scheme opened 23rd February 2021 up to and including 21 June 2021.

The new scheme allows you:

  • To pay your deferred VAT in equal instalments, interest-free
  • Choose numbers of instalments, from 2 to 11 (depending on when opted to join the scheme).

How to join

Before joining, ensure you have:

  • Your VAT registration number;
  • Created your own Government Gateway account;
  • Submitted any outstanding VAT returns from the last 4 years – otherwise, you’ll not join the scheme;
  • correct errors on your VAT return as soon as possible;
  • Ensure you know how much you owe, including the amount you originally deferred and how much you may have already paid.

To join the scheme. HMRC requires you:

  • Join the scheme yourself; your agent cannot do this for you;
  • Have deferred VAT to pay;
  • Be up to date with your VAT returns;
  • Join by 21 June 2021;
  • Pay the first instalment when you join;
  • Pay your instalments by Direct Debit. However, if you’re unable to pay by Direct Debit, there’s an alternative entry route).

However, if you join the scheme, you may still have Time to Pay arrangements for other HMRC debts and outstanding taxes.

Dealing with HMRC company debt Negotiating with HMRC

If you do not attempt to negotiate, HMRC may consider ‘enforcement action’ to recover the money from you.

If HMRC Offers No More Time?

When the HMRC evaluates, you are unable to get your payments up to date with more time. They may decline an arrangement with you and demand immediate payment of your tax debt. Failure to pay immediately ensures the HMRC commences ‘enforcement action’ to recover outstanding tax debt.

How does HMRC collect tax?

The HMRC uses many ways to collect tax, no matter how insignificant:

  • Issues fines and penalties.
  • Uses statutory demands to encourage payment.
  • Failing payment, so issuing a Winding-up Petition to the company for not paying tax.
  • Finally, seizing goods to cover the cost and tax not paid.

The HMRC remains responsible for collecting duties and taxes in the UK for the crown.

PAYE & VAT is aggressively collected, as they are the more significant part of the tax due.

VAT, though, chased the hardest as you collect VAT on behalf of the HMRC.

If your company receives a winding up order from HMRC it is important as a director you know what to do next.

Dealing With HMRC Company Debt – Control of Goods.

Dealing with HMRC debt and your rights?

You must understand clearly what HMRC debt collectors remain legally authorised to carry out when collecting unpaid tax. For example, having a visit from an HMRC enforcement officer or bailiff means both are legally entitled to force entry into commercial premises only, provided a court has authorised such action. 

For further detailed reading on notices of distraint by HMRC, please read ‘Notice of Distraint issued by HMRC‘.

HMRC debt collectors can seize items to repay the outstanding debt, including costs, as soon as they have entered your commercial premises. Notably, items removed have a lower value, usually sold at a public auction.

Before uplifting items, the enforcement officers will attend your commercial premises to list items to seize as security as part of the Controlled Goods Agreement. Signing the agreement allows you seven days to raise funds to repay the debt plus costs. Refusing to do so prompts the bailiff to remove goods immediately. Once you sign a Controlled Goods Agreement, the goods remain under the control of the agent. Therefore, you may not sell or remove them. Doing so is a criminal offence.

Can Enforcement Officers remove items that belong to you personally?


An incorporated limited company in England and Wales is legally separate. Therefore, the company’s finances are distinct, meaning assets owned by the directors, like cars, investments in their names, and homes. Remain protected. If the assets are in the limited company’s name, they remain the company’s assets and will be sold by a liquidator if the company fails.

If goods are removed and sold, do not cover the amount due. The HMRC may then issue a winding-up petition against the limited company.

Can HMRC take money from the Company Accounts?

  • Effective April 2016 onwards, HMRC can recover tax liabilities of £1,000 or more from business bank accounts. They may only carry this out once they have held a meeting with the client beforehand and attempted to collect, but fail to do so:
  • To identify the taxpayer and affirm their debt;
  • Explain the amount due and why the HMRC are chasing;
  • Discuss options for repayment;
  • Check if the taxpayer is ‘vulnerable’ debtors, and if so, provide support to aid settlement;
  • Then, those not vulnerable, but have money to pay the tax debt, who refuse to pay, can then have money taken from their account. Thirty days is allowed to object to HMRC’s decision, and it is a condition that the taxpayer has £5,000 left in the account.

Personal Liability Notices Issued by HMRC.

Failure to pay National Insurance contributions (NICs) can be recovered using a personal liability notice issued by HMRC. However, an HMRC officer must believe that payment withheld is fraudulent or negligent by an officer of the company or any person party to and in a position of authority compliant in non-payment.

Therefore, the recovery of unpaid NICs from a company officer is dealt with by issuing a Personal Liability Notice (PLN).

Which HMRC Department Issues PLNs?

Personal Liability Notices Teams are authorised to issue such notices. PLNs apply when they are enforceable.

Tax Tribunals hear appeals against PLNs.

PLNs. When are they issued?

PLN’s are issued when companies have been blatantly negligent, not paying over National Insurance contributions deducted from employees’ pay.

Wrongful Trading

Tax to HMRC is severe enough under standard terms. However, suppose you, as a director, withhold any form of taxation, especially VAT, with the intent to defraud the crown. Then you are exposed to fines and imprisonment, as it is a criminal offence. Delaying paying your tax bill, being late paying your VAT, or failing to be VAT registered, is dealt with by fines and other financial ways. Fraud, though, is taken seriously, especially with VAT.

Dealing With HMRC Company Debt – What is a Validation Order?

Validation orders authorise the distribution of property following a winding-up or bankruptcy petition.

UK banks view the date advertised as the date of the petition. That being the case, the advertisement allows banks to be aware of any winding-up petition. Therefore, they immediately ‘freeze’ the company’s bank accounts; as they are concerned, the liquidator may claim losses.

However, the short-term effect on the debtor means they lose the ability to trade.

What effect does a validation order then have?

A validation order lets a company continue trading. It also allows the sale of an asset to benefit all the company’s creditors. Effects of an order may vary, specific or to using, say, employees. A validation order can be open, validating transactions until the winding-up petition resolved, if at all.

Requirements for a validation order application?

You require experienced lawyers to draft and submit the order on your behalf.

The information required needs to be robust and factual, with substantive legal argument. Substantial evidence must support application requirements and persuasive admissible evidence.

You may only create a validation order if:

  • You are following an application to the Court and
  • Following a hearing of that application.

The Registrar does not administer a validation order application at the time of the hearing, as stated on the winding-up petition you have received. You are required to seek a further hearing before the Judge in Court.

The Judge, however, requires satisfaction that the evidence is credible and the company is not insolvent. Once court action has started, the company must also demonstrate the ability to satisfy its debts as and when they are due. Furthermore, your order must, if unsecured, not be in prejudice to other creditors.

General information required for an application:

  • Company number, its trading and registered office address;
  • A brief outline of your company’s journey;
  • The company’s nominal and paid-up capital;
  • Do you admit or dispute the petition:
  • A summary outlining how the company received notification of the winding-up petition;
  • Up to date financial position, ensuring detailed notes and previous management accounts.
  • If disputed, why? Details;
  • A credible, realistic, professional cash flow forecast and profit and loss projection covering the period the order sought;
  • Details of the dispositions or payments in respect of which an order was sought;
  • Reasons used in support of the dispositions or payments made;
  • Any other information in support of the Court;

If an urgent application? To ensure payments allow the company to continue trading, a Court can offer limited relief for a limited time. There needs to be evidence to satisfy the Court that creditors’ interests are not prejudiced.

The order requires a sale of a property. The Court requires property details, along with a valuation, if possible, to confirm the true value, and not at undervalue affecting other creditors.

VAT Surcharges?

How are they calculated?

During these difficult trading times, companies find it difficult to control cash flow. Therefore, paying has become a problem. VAT, however, remains the tax HMRC demands on collecting. HMRC charge surcharges for late payment (Outside the Coronavirus Pandemic).
The numbers of defaults determine surcharges.

If you have been late paying the HMRC more than twice a year, then a surcharge will apply.

The outstanding sum your company owes. Then include surcharges calculated as a percentage.

For the latest information on surcharges during the COVID-19 pandemic, view the HMRC VAT site for up-to-date information.

Dealing With HMRC Company Debt – HMRC Response to a Validation Order?

When in the shoes of a < substantial> petitioning creditor, consider factors relating to the purpose of the order and the history of the previous payment trail.

HMRC’s response may depend on the reason for the order and the trading trend before.

They can oppose an application.

Consult a commercial solicitor?

Validation orders are technically a minefield and require expert knowledge.

REMEMBER – HMRC DEBT does not solve itself

Further, help and assistance

HBG Advisory can support you with HMRC Inland Revenue Debt.

HM Revenue and Customs have considerable means to recover tax remaining unpaid. Therefore, it’s essential to ensure that they are a priority. 

It is worth mentioning that HBG Advisory deals solely with corporate debt, not income tax arrears. We can, though, provide support individually through Individual Voluntary Arrangement (IVA).

The Team at HBG Advisory

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