How does HMRC collect company tax debt?

When your company falls behind with tax, HM Revenue & Customs (HMRC) uses a structured process to recover what’s owed. This is not like a typical creditor chasing unpaid bills. HMRC has statutory powers and enforcement options that allow it to pursue tax arrears for at least six years. In some cases it can be much longer if there’s evidence of avoidance or fraud.

HMRC pursues unpaid sums across a range of company taxes, including when:

• You can’t pay VAT
• You can’t pay PAYE and National Insurance (collected from employees’ pay)
• You’re behind on Corporation Tax
• You have other HMRC liabilities like CIS deductions and associated penalties

What is HMRC’s company debt collection process?

1. Reminders and payment requests

The process usually starts with simple reminders and statements of what’s overdue. These letters or online messages will outline:

• What tax is unpaid
• The amount owed
• Deadlines for payment
• Warnings about interest and penalties

At this stage, HMRC is still seeking voluntary payment. It’s vital not to ignore these communications as HMRC will see this as a sign of disengagement and it makes escalation more likely.

2. HMRC phone calls and debt collection agencies

If you don’t respond or pay, HMRC may follow up with calls from its debt management teams or instruct regulated third-party debt collection agencies to contact you about settlements.

These collectors don’t have HMRC’s full enforcement powers but they can encourage payment or negotiate affordable terms on behalf of HMRC. If nothing is resolved at this stage, the matter returns to HMRC’s direct control.

3. Time to Pay arrangements

A common early option is a Time to Pay arrangement. HMRC can agree an instalment plan that lets a company spread its tax arrears over a period, often six to twelve months, provided:

• The business appears viable
• The repayment amounts are realistic
• The company continues to meet current tax obligations

This is not a write-off. It’s a way of managing payment that keeps enforcement at bay while it’s maintained.

4. Enforcement officers and bailiffs

When early engagement fails, HMRC can escalate to enforcement officers, sometimes referred to as bailiffs. These officers can visit business premises and:

• Assess the situation on site
• Take control of goods under a controlled goods agreement
• Remove and sell assets to satisfy the debt

Although there are limits to what can be seized (for example, goods belonging to third parties), their involvement signals that HMRC has moved beyond administrative collection.

5. Statutory demands and direct recovery

HMRC may issue a statutory demand for payment. This formal legal notice says the company must pay within 21 days. Failure to comply is often a direct route to court action.

In certain cases, HMRC may also use its power to directly recover debt from company bank accounts, automatically withdrawing funds above a protected minimum balance without needing a court order first.

Winding-up petitions and compulsory liquidation

If earlier actions fail, HMRC can petition the court to wind up the company. A winding-up petition is a serious step that:

• Is advertised publicly
• Can freeze access to bank accounts
• Makes trading difficult
• May prompt other creditors to join the petition

If the court grants the petition, the company enters Compulsory Liquidation. At this point, HMRC is no longer collecting overdue tax but seeking to realise the company’s assets to pay as much of the debt as possible.

How long can HMRC chase debts?

HMRC can chase company tax debt for at least six years from the due date, and in some cases longer, especially where returns were not filed or there’s suspicion of wrongdoing.

Outside formal insolvency processes, HMRC rarely writes off debt. The most common circumstances where debt may be cleared are:

• Successful Time to Pay arrangements that cover the debt
• Company Voluntary Arrangements that include partial write-offs
• Liquidation (voluntary or compulsory) where remaining debt cannot be paid from assets

Director liability risks

As long as a limited company remains solvent, its tax debts are its own. Directors aren’t automatically personally liable for company debts to HMRC. But personal exposure can occur if you:

• Have an overdrawn director’s loan account
• Continued to trade while insolvent
• Are subject to a joint and several liability notice from HMRC (which can make you personally responsible along with others connected to the company)

Persistent failure to engage with HMRC or repeated insolvencies may also draw scrutiny from the Insolvency Service.

Key takeaways for HMRC company tax debt collection

• HMRC follows a clear escalation process, starting with reminders and moving quickly to enforcement if debts aren’t addressed
• VAT and PAYE are treated as priority debts, so arrears in these areas often trigger faster action
• Time to Pay arrangements can pause enforcement, but only where the business is viable and repayments are realistic
• If tax remains unpaid, HMRC can use bailiffs, issue statutory demands and petition to wind up the company
• A winding-up petition usually means loss of control and severely limits your options
• Rising HMRC pressure is often a sign the company is cash-flow insolvent and needs formal advice
• Acting early keeps you in control and reduces the risk of HMRC forcing liquidation

Get advice on HMRC tax debt collection

If HMRC is chasing unpaid company tax, the situation rarely improves on its own. What starts as reminder letters can escalate quickly into enforcement action, statutory demands or a winding-up petition if the underlying issue isn’t addressed.

Speaking to a qualified insolvency practitioner gives you clarity on where you stand and what HMRC is likely to do next. Early advice also helps you avoid common mistakes, such as agreeing to repayments the company can’t sustain or delaying action until HMRC takes control of the process.

If you’re under pressure from HMRC, get confidential advice tailored to your company’s position. Understanding your options now can prevent enforcement later and help you stay in control of the outcome.