PAYE Payment Arrears To HMRC

PAYE payment arrears to HMRC. Written by: John A Waller. Director. Reviewed November 30th,2022.

Many companies have a significant issue with PAYE payment arrears to HMRC, which leads to limited company failure.

PAYE Arrears is something directors need to take seriously when negotiating with HMRC

When you contact HMRC about being unable to pay PAYE, they will look at your company’s tax history to help them decide whether to offer a helping hand. Companies experiencing issues paying PAYE find that HMRC usually reacts more leniently than if dealing with a company that often misses payments.
At HBG Advisory, we specialise in helping company directors sort out their PAYE arrears.

In most insolvencies, HMRC is the major creditor. If you can’t pay your PAYE, contact HMRC Debt Management and Banking Department to set up a tax payment plan.

HMRC adopts a scheme for collecting taxes from employed individuals by employees referred to as PAY AS YOU EARN (PAYE). The employer remains responsible under the scheme to deduct tax from employees’ pay at source to HMRC, usually monthly.

Deductions include:

  • Income tax.
  • National Insurance Contributions and 
  • Construction Industry Scheme (CIS) deductions. 

Company directors hold monies deducted on behalf of HMRC, which are not the property of the limited company, for any use other than to pay HMRC. 

HMRC collects the tax deducted from the company via direct debit on the 22nd of the month. HMRC uses Real-Time Information (RTI) software to manage this process. Therefore, having information on the amount held and unpaid may take immediate action for its recovery. 

Inspect what your PAYE debt is using the Paye Tax Calculator.

Input your employer tax code into the calculator as per this link PAYE calculator.

Implications of missing any PAYE payments?

The RTI monitors payment via debit debits therefore in the unusual case of arrears, then: 

Number of non-payment in the tax year   

Penalty percentage charged to the amount unpaid in the relevant month.

  • 1st Default – 0
  • 1 to 3 – 1%
  • 4 to 6 – 2%
  • 7 to 9 – 3%
  • 10 or more – 4%

HMRC will charge daily interest accrues on all unpaid amounts from the due date to the payment date.

Underpayments attract a 5% additional penalty charge if unpaid after six months.

Usually, HMRC remains diligent in collecting tax, primarily through PAYE. Once their systems trigger alerts internally, they have a prescribed manner of collecting overdue sums. Once the initial chase-up demand letters have been issued and there is no response, they instruct enforcement officers to secure goods to the value of the outstanding debt plus cost. Usually, adequate leverage prompts debtors to pay. However, if all else fails, they will issue a winding-up order to enforce a limited company into compulsory liquidation via the courts. Directors should note that company directors are now trading while insolvent, and the company remains insolvent.

Company directors must understand their director’s duties and responsibilities at this point.

Protecting the interests of creditors, not shareholders, is the primary concern now of a company director.

Company directors are now exposed to the risk of wrongful trading. Don’t bury your head in the sand.

Remember, this money is not the liability of company directors; it remains the company’s liability.

However, please note that failure to act as a company director may cause the issue to fall onto your lap if ignored. 

PAYE payment arrears to HMRC – Options for paying the PAYE arrears?

Time to pay arrangement.

The first thing to do is contact HMRC and explain the situation. The Business Payments Support Service of HMRC typically allows six months to pay back any arrears. As long as they are satisfied, the business is viable. In the past, the company has generally complied with its taxes. HMRC requires direct debit payments, but if one misses a payment is; the agreement remains cancelled. This payment plan is called a Time To Pay Arrangement or TTP. The team at HBG Advisory has considerable expertise in arranging TTPs. Don’t hesitate to contact HBG Advisory to discuss how we may help you and your limited company.

  • A Company Voluntary Arrangement.

If the company is viable if it wasn’t for the debt and could be paid off in full or in part over 3-5 years, then perhaps a company voluntary arrangement (CVA) could be an option. A CVA is an insolvency procedure, so directors should not undertake it lightly. However, it is a powerful tool to protect an insolvent company. 

  • Seeking to borrow money personally to pay the PAYE.

Company directors should only do this in exceptional circumstances, as taking out a loan for a limited company that cannot pay HMRC often requires personal guarantees and security, like your home. As you are not personally liable for the debt, is this wise? 

Ask yourself. How viable is your company? 

  • I am considering liquidating my limited company.

Liquidation of a limited company requires careful consideration, as it provides a solution through ultimate closure.

If HMRC remains concerned about how directors conducted matters at your previous company, they will request a hefty deposit to protect future taxes.

For a further detailed reading on arrears of PAYE payments, view the company can’t pay PAYE to HMRC


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