What to Do When Your Tax Debt Becomes Critical
You’ve missed a month of VAT payments. Last week, HMRC sent a notice of assessment for three years of back tax. Your accountant is getting nervous. You’re getting nervous.
This is one of the most common scenarios we see at Springfields Advisory LLP, and the first thing you need to know is: you’re not alone, and there are options.
If your business is struggling with HMRC arrears, the critical distinction is whether your company is still viable because that answer determines everything about what happens next. From a simple time-to-pay arrangement to a formal insolvency process.
This blog covers what HMRC arrears actually are, what they’re allowed to do about yours, and what options exist when the debt becomes unmanageable.
What Are HMRC Arrears?
HMRC arrears are unpaid taxes owed to HM Revenue and Customs. These typically include:
• VAT (Value Added Tax)
• Corporation Tax
• PAYE (Pay As You Earn) and National Insurance
When a business misses payments, HMRC doesn’t immediately pursue insolvency. Instead, they follow a legal process: reminder notices, assessments, and eventually, if unpaid, enforcement action.
The key point:
Parts of HMRC’s debt ranks a preferential creditor in insolvency processes. This means that they can rank highly in claims on your assets. But it also means they have incentive to work with you if your business is salvageable they’d rather get paid over time than get nothing from a liquidation.
Early Warning Signs You’re Heading Toward Arrears
It rarely happens overnight. Directors usually notice warning signs:
• Cashflow tightens, but you keep paying everything else (wages, suppliers, rent)
• HMRC payments get pushed back by a month, then two months
• You stop opening HMRC letters
• Your accountant starts asking uncomfortable questions
The pattern is predictable: in a downturn or growth phase that went wrong, HMRC payments are often the last thing tackled because the personal consequences aren’t immediate. But they accumulate fast.
VAT, for example, compounds monthly. Miss three months and you’re looking at a five-figure debt. Miss a year and you’re in genuine trouble.
The mistake most directors make: waiting until HMRC issues a notice before getting advice. By then, options are narrower and pressure is higher.
What Can You Do? Time-to-Pay Arrangements
If your business is still trading and still viable, HMRC’s preferred first step is a Time-to-Pay (TTP) arrangement.
How it works:
• You contact HMRC (or better: your accountant or insolvency advisor does)
• You propose a repayment schedule over an agreed period (usually 12–24 months)
• HMRC assesses whether it’s realistic given your cashflow
• If approved, you stick to the schedule
Why HMRC prefers this:
They get paid, your business survives, no court involvement, no messy administration process.
Why it sometimes fails:
Directors underestimate what they can actually afford and miss payments, which destroys the arrangement and triggers enforcement immediately.
The critical piece:
A TTP arrangement only works if your underlying business problem is solved. If you’re still bleeding £10k a month, a TTP just delays the inevitable.
When Arrears Signal Deeper Insolvency
If HMRC arrears are part of a wider debt problem. You owe suppliers, your bank is threatening, you’ve missed payroll, then you’re not looking at a payment arrangement. You’re looking at insolvency.
This is where the conversation shifts.
Your options at this point:
- CVA (Company Voluntary Arrangement). Propose a restructure to all creditors (including HMRC) with 75% approval by value. HMRC often accept because they see a plan and regular payments.
- Administration. Appoint an administrator who has breathing room to restructure or sell the business. HMRC arrears are dealt with as part of the process.
- Liquidation. Sell assets, pay creditors in order of priority (HMRC ranks high), wind down the company.
The Nuance:
HMRC arrears don’t necessarily mean liquidation. They mean you need a plan. And the plan has to be credible.
Why You Need Professional Advice Now
Here’s what we see go wrong:
- Director tries to negotiate with HMRC alone and ends up with an unaffordable arrangement
- Accountant says “get an insolvency advisor” but director waits six months
- HMRC issues a winding-up petition because the TTP fell apart, and suddenly you’re in court
If you have HMRC arrears and you’re uncertain about your business’s viability, the answer is the same: get professional clarity now. Not next month. Now.
What to Do Next
If you’re facing HMRC arrears, the first step is honest: can your business survive?
If yes, a time-to-pay arrangement might be enough. If no, or if you’re unsure, a CVA or restructure might save it. If it’s genuinely unviable, liquidation is clean closure.
We’ve helped hundreds of directors navigate this. Call us for a free, confidential conversation about where you stand. No obligation. Just clarity.
Contact us today for a Free Insolvency Consultation 0116 2994745 or email situl.r@springfields-uk.com
