HMRC is one of the biggest creditors in the UK, so it’s natural to be worried if you’re struggling to pay your debts. In this blog, we’ll explain what to do when having difficulties paying HMRC.
Who is HMRC?
HMRC is an abbreviation for HM Revenue & Customs. They are responsible for collecting money in the form of taxes, PAYE, VAT, Corporation Tax and others.
Directors must remain up to date with their accounts and the relevant returns, such as VAT and PAYE, most businesses will use an accountant to help with this.
Self-employed workers must file their Self Assessment Tax Return on time and pay the money when it is due.
Dealing with HMRC & paying HMRC
When dealing with HMRC, it is crucial that you file your tax return even if you are worried that you may not be able to make the payment in full. Not filing returns on time or not filing returns at all can get you in more trouble than filing and not being able to pay.
You’re better off communicating and being honest with HMRC rather than ignoring them, as they will not stop taking action against you until the money has been paid or an agreement has been made to pay. Many directors have experienced visits from HMRC bailiffs, which is best avoided and, in most cases, can be avoided with clear communication. HMRC may offer different payment options for you, which we’ll go into now.
What is a time-to-pay arrangement with HMRC?
HMRC offers some directors a time-to-pay arrangement. This means that directors will have longer to pay their debts to HMRC, as they will do so in instalments. HMRC will only offer directors this opportunity if they believe they will be able to keep up with the payments and do not have a history of making time to pay arrangements and then not adhering to them.
It’s up to them how long they allow you to pay off your debts, but you may be able to work with them to find a solution that meets both of your needs. It’s important that you remember when discussing a potential time-to-pay arrangement with HMRC that you only agree to one that you can stick to. Agreeing to a time-to-pay arrangement that is destined to fail will only cause you and your business more problems down the line.
When you speak to the HMRC about a time-to-pay arrangement, you must stress that you want to pay back what your company owes, but you need them to support you. In most cases, you will be able to arrange a time to pay arrangement over 12 months, and in certain circumstances, you may be able to get even longer. HMRC deals with these on a case-by-case basis but our advice to directors is to try and stretch the time-to-pay arrangement over the longest period possible.
If HMRC agrees to your request for a time-to-pay arrangement, it’s critical that you stick to the payments that you have agreed to and you also keep up to date with any current amounts owed to HMRC. Failure to keep up with payments will result in a breach of your time-to-pay arrangement, and enforcement action will resume in earnest.
Let’s imagine that you have had a time-to-pay arrangement that has failed because you haven’t kept up payments, then you must seek advice as soon as you can. Once a time-to-pay arrangement has been defaulted, one of the next steps could be a winding up petition from HMRC.
Closing a limited company with debts to HMRC
As soon as you notice that your business is becoming insolvent, you should seek advice. A clear sign of insolvency is being unable to pay HMRC on time or failing on a time-to-pay arrangement.
Seeking advice early will help you in the long run, as the earlier you seek advice, the more options you will have available.
If you enter a creditors’ voluntary liquidation, the debts to HMRC will be included in the liquidation and written off. Before you make any decisions to liquidate a business that owes HMRC, you must check to see if placing a business into liquidation will cause you any issues personally. We can help you with this at Director First. Read our blog on the different types of liquidation.
Before you commit to entering liquidation, we will outline absolutely everything upfront so you don’t get any nasty surprises down the line. Contact us today for advice and support.
I'm Chris Worden, Managing Director at Director First. 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.
