What role does HMRC play in insolvency?

HMRC is often one of the largest creditors in insolvency cases, as many businesses accumulate arrears in VAT, PAYE, or Corporation Tax. HMRC has wide enforcement powers, including issuing statutory demands, seizing assets, or petitioning for a company’s winding-up. However, HMRC may also be flexible if businesses engage early and propose realistic repayment plans. Time-to-pay arrangements are a common solution, allowing tax debts to be repaid over several months or years. In CVAs, HMRC frequently plays a decisive role in creditor votes, given the size of their claims. HMRC also has preferential status for certain tax debts, meaning they are repaid before unsecured creditors in liquidation. For directors, managing tax obligations and maintaining open communication with HMRC is critical in financial distress. Ignoring tax debts is one of the fastest ways to trigger enforcement and insolvency proceedings.