How to Deal with HMRC Debt
Expert guidance for UK directors facing tax arrears, debt collection, and enforcement action. Protect your business and avoid personal liability with proven strategies.
Facing HMRC Enforcement Action?
Don't wait. HMRC debt collection escalates rapidly from letters to winding-up petitions. Early action protects your business and prevents personal liability for directors.
Understanding HMRC Debt Collection
HMRC has extensive powers to collect overdue tax including VAT, PAYE, Corporation Tax, and National Insurance. Understanding their process helps you respond effectively.
VAT Arrears
Quarterly VAT payments and returns often the first to fall behind
PAYE & National Insurance
Employee tax deductions held in trust for HMRC
Corporation Tax
Annual company tax liabilities and advance payments
CIS Deductions
Construction Industry Scheme tax deductions
HMRC's Escalating Enforcement Powers
Early Stage Collection
- Reminder letters - Initial notifications of overdue amounts
- Phone calls - Direct contact from HMRC debt management
- Field officer visits - Face-to-face collection attempts
Serious Enforcement
- County Court claims - Legal action for unpaid debts
- Distraint visits - Seizure of business assets
- Winding-up petitions - Court action to close your company
How to Pay Your Tax Bill - Available Options
HMRC offers several payment options for overdue tax bills. The key is acting quickly and choosing the right approach for your situation.
Pay Your Tax Bill Now
Best option if you have funds available
- • Online payment via HMRC gateway
- • Bank transfer or Direct Debit
- • Telephone banking
- • Stops all enforcement action
- • Prevents interest and penalties
Time to Pay Arrangement
Spread payments over time (typically 6-12 months)
- • Must demonstrate ability to pay
- • All future taxes paid on time
- • Interest may be suspended
- • Can extend up to 30 months
- • No renegotiation if you default
Formal Restructuring
For companies unable to pay in full
- • Company Voluntary Arrangement (CVA)
- • CIGA Restructuring Plan
- • Stops winding-up petitions
- • Binds all creditors
- • Requires professional advice
HMRC Debt Collection Timeline
Understanding HMRC's escalation process helps you take action at the right time. Each stage offers opportunities to resolve the debt.
Letters & Calls
Initial reminders and payment requests
Days 0-30
Field Officer Visit
Face-to-face collection attempt
Days 30-60
County Court
Legal action for judgment
Days 60-90
Distraint Visit
Seizure of business assets
Days 90-120
Winding-Up
Petition to close company
Days 120+
Stage 1: Letters & Calls (Days 0-30)
Initial reminders and payment requests
Stage 2: Field Officer Visit (Days 30-60)
Face-to-face collection attempt
Stage 3: County Court (Days 60-90)
Legal action for judgment
Stage 4: Distraint Visit (Days 90-120)
Seizure of business assets
Stage 5: Winding-Up (Days 120+)
Petition to close company
Critical Action Points
Act Early
Respond to first letters to avoid escalation
Communicate
Never ignore HMRC - always respond
Get Expert Help
Professional advice prevents personal liability
What if Your Company is Insolvent?
If your company cannot pay its debts when due, it may be insolvent. This shifts directors' duties from shareholders to creditors and creates potential personal liability.
Four Tests of Insolvency:
- • Cash flow test: Cannot pay debts when due
- • Balance sheet test: Liabilities exceed assets
- • Statutory demand: Failure to deal with formal demand
- • Judgment debt: Unpaid court judgment
Key advice: If insolvent, seek immediate restructuring and turnaround advice to avoid personal liability pitfalls.
Director Liability Risks
- • Wrongful trading if continuing while insolvent
- • Personal guarantees may be called
- • Misfeasance claims for breach of duty
- • Criminal liability for fraudulent trading
Protection Strategies
- • Take professional advice immediately
- • Document all decisions and rationale
- • Consider formal insolvency procedures
- • Engage with creditors transparently
How K2 Business Partners Can Help
With over 30 years of experience, we've successfully helped hundreds of companies navigate HMRC debt collection and achieve sustainable turnarounds. We invest in your success.
Our HMRC Debt Solutions
Immediate HMRC Negotiation
Direct engagement with HMRC to stop enforcement and agree payment terms
Cashflow Restructuring
Optimize working capital and operations to generate funds for tax payments
Formal Arrangements
CVAs and Restructuring Plans to bind HMRC and all creditors
Director Protection
Strategies to minimize personal liability while solving the debt issue
Recent Success Story
DSTBTD Restructuring Plan
K2 recently led a successful CIGA Restructuring Plan that achieved overwhelming creditor support (100% of secondary preferential and 99.5% of unsecured creditors) while maintaining business operations.
Key Achievements:
- • Early engagement with multiple HMRC departments
- • Transparent stakeholder communication
- • Comprehensive turnaround plan implementation
- • Court approval with minimal legal costs
Investment Partnership Approach
Unlike traditional advisors, K2 invests our time and expertise in return for a minority equity interest or success fee. This ensures complete alignment with your success.
Our investment might also involve injecting cash to achieve strategic objectives, always structured as a loan to protect your ownership.
Why Choose K2?
- • Proven track record with HMRC negotiations
- • Immediate access to turnaround expertise
- • Investor network for growth capital
- • Dedicated partner throughout the process
- • Success-based fee structure available
Immediate Action Steps
Don't wait for HMRC enforcement to escalate. Take these immediate steps to protect your business and directors.
Assess Your Position
- • Calculate total HMRC debt
- • Check all correspondence
- • Determine enforcement stage
- • Review cash flow forecasts
Contact HMRC
- • Call debt management number
- • Explain your situation
- • Propose payment plan
- • Get agreement in writing
Get Expert Advice
- • Turnaround professionals
- • Insolvency advice if needed
- • Director liability protection
- • Strategic restructuring
Implement Solution
- • Time to Pay arrangement
- • Formal restructuring plan
- • Operational improvements
- • Monitor compliance
Need Immediate Help with HMRC Debt?
Don't let HMRC enforcement escalate. Our experienced team can intervene immediately to protect your business and negotiate favorable terms.
Frequently Asked Questions
Common questions about dealing with HMRC debt and tax arrears
What happens if I don't pay my tax bill?
HMRC will escalate enforcement action from letters and calls to field officer visits, county court claims, distraint visits to seize assets, and ultimately winding-up petitions to close your company. Interest and penalties also accrue, increasing the total debt.
Can I negotiate with HMRC debt collectors?
Yes, HMRC often accepts Time to Pay arrangements for up to 12 months (sometimes longer). You need to demonstrate ability to pay and keep all future taxes current. Early engagement improves your chances of agreement and may suspend interest charges.
Do I owe taxes if my company is struggling?
VAT and PAYE are trust taxes held on behalf of HMRC - you must pay these even if struggling. Corporation tax is based on profits. If you're unsure about amounts owed, check your HMRC online account or contact them directly. Don't ignore tax obligations hoping they'll disappear.
Can HMRC close my company for tax debt?
Yes, HMRC can issue a winding-up petition to close your company for unpaid taxes over £750. Once issued, bank accounts may be frozen and you have limited options - usually payment in full or a Company Voluntary Arrangement. This is why early action is crucial.
Am I personally liable for company tax debts?
Directors can become personally liable through personal guarantees, wrongful trading while insolvent, or fraudulent activity. If your company is insolvent, seek immediate professional advice to understand your position and protect yourself from personal liability claims.
Don't Let HMRC Debt Destroy Your Business
With over 30 years of experience helping companies deal with HMRC debt collection, K2 has the expertise to protect your business and negotiate favorable outcomes. Take action today.
Emergency support available • Confidential consultation • Investment partnership approach