Why HMRC arrears escalate
PAYE, VAT and corporation tax are held on trust in substance: the money collected belongs to HMRC. That is why arrears here are treated more seriously than ordinary trade debt, and why HMRC is willing to petition for relatively modest sums.
The sequence is predictable. Reminders, then determinations or assessments where returns are missing, then enforcement action, and finally a statutory demand or a winding-up petition. Each stage is a chance to intervene before the last one.
Talking to HMRC before it petitions
HMRC will usually discuss a Time to Pay arrangement where the company can show a realistic plan and has filed its returns. The application is evidence-led: current arrears by tax head, a cash flow forecast, and a proposal that clears the arrears alongside continuing liabilities.
Where returns are outstanding, filing them first is normally a precondition to any arrangement. Unfiled returns hide the real liability and make every negotiation harder.
Security deposits and conditions
For VAT, HMRC can require a security deposit where it considers there is a risk of non-payment, and it can attach conditions to future periods. A demand for security is a cash-flow event in itself and should be planned for rather than treated as an administrative letter.
Where directors are personally exposed
Limited liability does not cover everything. Personal guarantees, overdrawn director's loan accounts, and personal liability notices in certain PAYE and NIC cases where an officer was responsible for the failures can all reach a director personally. Continuing to take money out of a company that cannot pay its tax invites exactly that scrutiny.
If a petition has already been issued
Arrears that are agreed and unpaid are difficult to defend on the merits, so the realistic routes are payment, a negotiated arrangement accepted by HMRC, or an insolvency process. HMRC will often adjourn a hearing to allow a short period to perform an arrangement — but only if the arrangement is documented and being met.
Practical record keeping
Keep RTI submissions, VAT returns, correspondence and any agreed plan in one place. Where HMRC later says an arrangement was not honoured, contemporaneous records are what determines whether the company was in default or whether the goalposts moved.
Frequently asked questions
Can HMRC wind up a company over VAT alone?
Yes. HMRC can present a petition for undisputed arrears above the statutory threshold, and it does so regularly for VAT, PAYE and corporation tax.
Does a payment plan stop enforcement?
An agreed Time to Pay arrangement normally pauses enforcement while it is kept. Missed instalments usually restart it quickly, so the plan needs to be affordable rather than optimistic.
Can I be personally liable for PAYE?
In limited circumstances. HMRC can issue personal liability notices where an officer of the company was responsible for the failure, and personal guarantees and overdrawn loan accounts are separate personal exposures.
Should we file missing returns first?
Yes. HMRC will rarely agree terms while returns are outstanding, and the unfiled periods usually turn out to be the largest part of the debt.
Sources and further reading
How we can help
If any of this applies to your company, the order in which you act matters. Our solicitors and accountants can review your position and set out the options quickly.
This guide is general information about the law in England and Wales and is not legal advice on your circumstances. Deadlines and procedural requirements change, so check the documents you have been served and take advice before acting.