I can’t pay my tax bill. What are my options?

Unpaid VAT, PAYE and Corporation Tax are among the most common pressures directors face. But there are practical routes available whichever type of tax debt you’re dealing with. The key is acting before HMRC escalates. 

HMRC is the UK’s most active petitioning creditor, responsible for around 60% of winding-up petitions. Once a petition is filed and advertised, bank accounts can be frozen and continued trading becomes difficult. Getting ahead of that process by engaging with HMRC early or taking formal advice keeps more options on the table.

Can’t pay your tax bill? Check if your business is viable

Before settling on a course of action, it’s worth being clear about whether the business can realistically recover. 

Repayment plans might work well where the company has a genuine trading future: stable income, manageable costs and enough cash flow to support repayments. 

But if tax arrears are part of a broader pattern of financial difficulty, this alone may not be enough. If your company can’t pay its debts as they fall due, it may already be insolvent. 

First steps to take if you can’t pay your tax bill

Talk to HMRC before enforcement starts

If you haven’t yet heard from HMRC’s enforcement teams, you’re still in a position to engage constructively. 

HMRC’s Business Payment Support Service exists specifically for companies in temporary difficulty. Direct contact at this stage keeps options open. You can propose a repayment arrangement or ask for time to put a formal plan together. HMRC generally prefers this to enforcement, provided the engagement is early and the proposal is realistic.

Even if you’re past the initial deadline, getting in touch is still worth doing. Ignoring correspondence makes escalation more likely and leaves HMRC less flexible on terms.

A Time to Pay arrangement

A Time to Pay arrangement (TTP) is an instalment plan agreed directly with HMRC. It allows the company to spread tax arrears over a period, typically three to twelve months, while keeping enforcement at bay. 

TTPs are available for most forms of HMRC tax debt, including VAT, PAYE and Corporation Tax, provided the business is otherwise viable and the proposal is credible.

HMRC will want to understand the company’s current financial position, why the arrears arose and how you plan to keep up with both the agreed instalments and future liabilities as they fall due. A plan that doesn’t account for ongoing tax obligations is unlikely to be accepted. 

If you’ve already missed a deadline, it’s still worth approaching HMRC. But the terms available to you may be tighter.

Formal insolvency routes if you can’t pay your tax bill

If the company can’t trade its way back to solvency, there are formal processes that allow the position to be resolved in a structured way. The right one depends on whether there’s a viable business to save.

Company Voluntary Arrangement

A Company Voluntary Arrangement (CVA) is a legally binding agreement between the company and its creditors to repay debts over time (typically three to five years) at an affordable level. 

HMRC is treated as an unsecured creditor in a CVA, which means it can be included in the arrangement alongside other creditors. CVAs require approval from 75% of creditors by value and, once approved, legally bind all unsecured creditors, including those who voted against.

A CVA is only an option where the business is genuinely viable, meaning there’s turnover, a customer base and a realistic forecast that supports the repayment schedule. It keeps the company trading and the directors in control. 

What happens if you file without meeting these conditions

Administration gives a company immediate legal protection from creditor action through a moratorium, while an insolvency practitioner assesses whether the business can be rescued, restructured or sold. 

It’s used where there’s something worth preserving but urgent action is needed, often to prevent a HMRC winding-up petition from resulting in Compulsory Liquidation. 

HMRC debts are dealt with as part of the Administration process, and the automatic moratorium that comes with Administration stops creditors from pursuing the company while options are being explored.

Creditors’ Voluntary Liquidation

Where the business isn’t viable and can’t realistically recover, a Creditors’ Voluntary Liquidation (CVL) allows directors to close the company on their own terms, before HMRC or another creditor forces the issue through the courts. 

A licensed insolvency practitioner is appointed to manage the process, deal with creditors and realise any remaining assets. 

Tax arrears, like all unsecured debts, are handled within the CVL, and any balance that can’t be paid from the company’s assets is written off once the process concludes, provided directors are found to have met their legal duties.

A CVL could also stop HMRC from escalating to a winding-up petition if one hasn’t yet been filed. If a petition is already in progress, a CVL can sometimes be used to bring the process back under director control. Acting before a petition reaches court is almost always the better position to be in.

Are you personally liable for your company’s tax bill?

For most directors of limited companies, tax debts remain the company’s responsibility. Limited liability means you’re not automatically obliged to pay what the company owes to HMRC. That protection does have limits, however.

HMRC can issue a Personal Liability Notice (PLN) where it believes that unpaid VAT or PAYE was deliberately withheld, or where a director has repeatedly failed to engage. PLNs allow HMRC to pursue the director personally for the debt. 

Personal risk also increases where a director has signed personal guarantees on company borrowing, has an overdrawn director’s loan account or has continued trading in a way that worsened losses to creditors after insolvency became clear.

If you’re unsure whether you’re personally liable for company debt to HMRC, that’s one of the first things a qualified insolvency practitioner will help you establish.

Don’t ignore HMRC correspondence

One thing that consistently makes the situation harder is not engaging. HMRC does keep records of how directors respond, or don’t respond, and that history influences how flexible they’re prepared to be. 

Directors who make contact early, file returns on time and engage honestly with HMRC’s questions are generally treated more constructively than those who ignore correspondence and wait for enforcement to begin.

If you’ve already missed deadlines and haven’t been in touch, it’s not too late to make contact. The position may be more manageable than it feels right now.

Key takeaways

• HMRC is the UK’s most active petitioning creditor, and unpaid VAT, PAYE and Corporation Tax can escalate to a winding-up petition faster than most directors expect. 
• A Time to Pay arrangement lets you spread arrears over instalments but only works if the proposal is realistic and you engage before enforcement starts.
• If the business is viable but overwhelmed by debt, a Company Voluntary Arrangement (CVA) keeps you trading while repaying creditors over time.
• Administration gives immediate legal protection from creditor action while options are assessed.
• A Creditors’ Voluntary Liquidation (CVL) lets you close the company on your terms, and tax arrears and other unsecured debts are written off once the process concludes, provided you’ve met your director duties. 
• For most directors of limited companies, tax debt stays with the company, and personal liability arises in specific circumstances, not automatically. 
• Ignoring HMRC correspondence makes enforcement more likely and terms less flexible.

Get advice on your tax debt now

If your company can’t pay its tax bill, speaking to a qualified insolvency practitioner is the most useful thing you can do. We can look at your company’s actual position, tell you clearly what it means and set out what’s available to you, without pressure or jargon.

That might mean a Time to Pay arrangement with HMRC, a formal restructuring process or a controlled closure. What’s right depends on the specifics of your situation. 

A conversation at this stage costs nothing and changes nothing but it gives you a clear picture of where you stand and what needs to happen next. The earlier you get in touch, the more realistic your options tend to be. 

Get in touch for a free, confidential conversation.