HMRC Arrears
If your Scottish company has fallen behind with VAT, PAYE, Corporation Tax or other HMRC liabilities, the important thing is to deal with the position before enforcement becomes more serious.
HMRC may agree additional time to pay where a viable company can realistically clear its arrears while also meeting future tax liabilities.
But if the company cannot afford both its historic HMRC debt and its ongoing liabilities, repeatedly delaying the problem can make the eventual insolvency worse.
In Scotland, HMRC also has specific enforcement options including summary warrant procedure, sheriff officers, charges for payment and diligence such as bank arrestment and attachment.
The right response depends on one central question: is the underlying business still financially viable?
What should I do if my company cannot pay HMRC?
Start by establishing the scale of the problem rather than simply paying whichever HMRC demand is most urgent.
You should understand:
- Which taxes are outstanding
- The total arrears
- Whether returns are up to date
- What current tax will fall due next
- Whether the company is profitable before historic debt repayments
- What cash is realistically available each month
- Whether other creditors are also overdue
- Whether HMRC enforcement has already begun
A temporary cash-flow problem and a fundamentally insolvent business require very different solutions.
What types of HMRC debt can a company owe?
Company HMRC arrears commonly include:
- VAT
- PAYE Income Tax
- Employee and employer National Insurance contributions
- Corporation Tax
- Construction Industry Scheme deductions
- Interest
- Late-payment penalties
- Other company tax liabilities
A company may owe several different taxes at the same time, each with different reference numbers and payment dates.
Make sure the company’s tax returns are brought up to date where possible. It is much harder to agree a realistic solution when neither the company nor HMRC knows the true amount outstanding.
Can HMRC give my company more time to pay?
Potentially.
HMRC can agree a Time to Pay arrangement allowing overdue tax to be paid by instalments.
HMRC will want to be satisfied that the proposal is realistic and affordable.
For a company, it may ask about:
- Current income and expenditure
- Cash-flow forecasts
- The amount available each month
- Other tax liabilities
- Business assets
- Available finance
- How quickly the arrears can reasonably be cleared
HMRC’s current guidance does not impose one universal maximum period for every payment plan. The length depends on the debt and what can realistically be afforded.
For company tax debt, HMRC will generally expect the debt to be reduced as much as reasonably possible and may ask whether business assets can be realised or finance introduced.
When is Time to Pay likely to work?
A payment arrangement is more likely to be a genuine solution where the underlying business is viable.
That usually means the company can:
- Meet normal wages and operating costs
- Pay new VAT, PAYE and other taxes as they fall due
- Meet its other creditor commitments
- Make a meaningful additional monthly payment towards HMRC arrears
- Continue trading without the historic debt increasing
If the company cannot afford its new tax liabilities while paying the old ones, a Time to Pay arrangement may simply postpone a larger insolvency problem.
What if I already have a Time to Pay arrangement?
Continue complying with it if the company can realistically do so.
If circumstances change and the company cannot make an instalment, contact HMRC rather than simply allowing the payment to fail.
HMRC’s current guidance says it may be possible to discuss changing the repayment terms if circumstances change.
However, repeated inability to maintain arrangements can be an important warning that the business may no longer be able to support its historic liabilities.
At that point, the issue should be reviewed as a company solvency problem rather than simply another request for more time.
Will HMRC ask me to put personal money into the company?
It may ask whether the directors or owners are able to provide additional support.
HMRC’s company Time to Pay guidance says it may ask directors to consider putting personal funds into the business, accepting lending or extending credit.
That does not mean ordinary company tax arrears automatically become the director’s personal debt.
Before investing personal savings or borrowing personally to pay HMRC, consider whether the company is genuinely capable of recovery and how any money introduced will be repaid.
Using personal money to fund a short-term viable restructuring can be very different from using it to postpone an unavoidable liquidation.
What happens if I ignore HMRC?
Ignoring HMRC normally reduces rather than improves the company’s options.
If HMRC cannot agree payment and the debt remains outstanding, it may:
- Contact the company repeatedly
- Use a debt collection agency
- Visit the business
- Use formal debt-enforcement powers
- Take court action
- Ultimately seek to wind up the company
Interest can continue to increase the amount due and penalties may also apply depending on the tax and circumstances.
If the company cannot pay, respond and establish what options remain rather than allowing each stage of enforcement to arrive without a plan.
How does HMRC enforce company tax debt in Scotland?
Scottish debt enforcement differs from England and Wales.
For unpaid tax in Scotland, HMRC can use the summary warrant procedure.
Under section 128 of the Finance Act 2008, HMRC can apply to the sheriff court for a summary warrant covering qualifying unpaid tax debts.
Once a summary warrant is granted, HMRC can instruct a sheriff officer to take enforcement steps.
What is a charge for payment?
After HMRC obtains a summary warrant, a sheriff officer can serve a charge for payment.
This is a formal demand requiring the outstanding debt to be dealt with.
HMRC’s current guidance states that, after service of the charge, the debtor normally has 14 days to:
- Pay the outstanding debt; or
- Agree an instalment arrangement
If the debt remains unresolved after that period, HMRC can instruct further diligence.
A charge for payment should therefore be treated as a significant escalation rather than another routine reminder letter.
What can sheriff officers do for HMRC?
If the charge for payment expires without payment or agreement, HMRC may instruct the sheriff officer to use an appropriate form of Scottish diligence.
For a company, relevant measures can include:
- Bank arrestment – targeting money held in a company bank account
- Attachment – attaching qualifying company assets
- Money attachment – attaching cash held at business premises in qualifying circumstances
The appropriate action depends on the circumstances and assets available.
Once diligence begins, the company’s ability to continue operating can deteriorate very quickly.
What is a bank arrestment?
Bank arrestment is a Scottish diligence that can affect money held by the company’s bank.
For an operating business, this can be particularly disruptive because money needed for:
- Wages
- Suppliers
- Rent
- Utilities
- Ongoing trading
may suddenly become unavailable to the company.
Do not assume that deciding to put the company into voluntary liquidation automatically reverses an arrestment that has already taken effect.
If the company’s bank account has been arrested, obtain advice immediately about the stage reached and the available options.
Can HMRC wind up a Scottish company?
Yes.
HMRC is a creditor and can seek compulsory winding up where the statutory requirements are satisfied.
For a Scottish registered company, compulsory liquidation is dealt with through the Scottish courts.
The Court of Session or a Sheriff Court with appropriate jurisdiction may order a company to be wound up on a creditor’s petition where the company cannot pay its debts.
HMRC does petition Scottish companies for winding up in practice.
By the time a winding-up petition has been presented, the directors’ options can be significantly more complicated than they were when the arrears first arose.
Does HMRC have to serve a statutory demand before presenting a winding-up petition?
Do not assume that a statutory demand is always required before a creditor can establish that a company is unable to pay its debts.
A statutory demand is one statutory route through which inability to pay can be demonstrated, but insolvency can be established in other ways.
If HMRC is threatening court or insolvency action, take the threat seriously even if the company has not received a document headed “statutory demand”.
Should the company pay HMRC before other creditors?
That depends on the company’s circumstances, but directors of an insolvent company should not simply decide that one creditor will be paid while others are ignored.
Once a company becomes insolvent, directors’ priorities shift towards protecting creditors as a whole.
Current Insolvency Service guidance says directors should:
- Protect company assets
- Avoid worsening creditors’ position
- Treat creditors fairly
- Consider professional insolvency advice
This does not mean every creditor has identical legal priority in a later insolvency. It means directors should not make selective payments for improper reasons or simply to improve their own personal position.
If cash is insufficient to pay everybody, obtain advice before making substantial or unusual payments.
Does HMRC rank ahead of other creditors in liquidation?
Some HMRC debts have preferential status in insolvency, while others do not.
For formal insolvencies commencing from 1 December 2020, certain taxes collected by businesses on behalf of employees or customers rank as secondary preferential debts.
These include qualifying amounts relating to:
- VAT
- PAYE Income Tax
- Employee National Insurance contributions
- Construction Industry Scheme deductions
- Student loan deductions
Other HMRC debts, including Corporation Tax and employer National Insurance contributions, do not have that same secondary preferential status.
The liquidator deals with the correct statutory ranking after appointment. Directors do not need to work out the insolvency distribution themselves before taking advice.
Does owing HMRC make the directors personally liable?
Not automatically.
VAT, PAYE, Corporation Tax and other taxes incurred by a limited company are normally company liabilities.
The company entering liquidation with HMRC arrears does not, by itself, transfer those debts to the directors.
There are specific circumstances in which personal liability can arise, including particular statutory HMRC powers and claims connected with director conduct.
Those are exceptions rather than the normal consequence of a company being unable to pay tax.
Will HMRC arrears cause director disqualification?
Not simply because tax remains unpaid.
The company’s tax history can, however, form part of the review of director conduct after insolvency.
Greater concern may arise where, for example:
- Substantial tax debt accumulated over a prolonged period
- The company repeatedly failed to pay new taxes while continuing to trade
- Returns were deliberately not submitted
- Company money was extracted while HMRC and other creditors went unpaid
- There is evidence of repeated companies being used to leave tax debts behind
The existence of arrears itself does not prove that a director has acted improperly.
Should I stop trading because the company owes HMRC?
HMRC arrears do not automatically mean that the company must stop trading immediately.
The wider financial position matters.
Questions to consider include:
- Is the core business profitable?
- Can the company pay current wages and operating costs?
- Can it pay new taxes as they arise?
- Are creditor arrears reducing or increasing?
- Is there realistic new finance or restructuring available?
- Would continued trading improve or worsen the likely return to creditors?
Where the business cannot meet ongoing liabilities and arrears continue to increase, continuing indefinitely can worsen creditors’ position.
At that point, directors should obtain insolvency advice promptly.
When should I consider liquidation instead of another payment arrangement?
A CVL may need to be considered where there is no realistic route to restoring the company to a sustainable position.
Warning signs can include:
- The company cannot pay new taxes as they fall due
- HMRC arrears are increasing every month
- A previous Time to Pay arrangement has failed
- Suppliers and other creditors are also seriously overdue
- The company has no realistic working-capital solution
- The business is trading at an ongoing loss
- Sheriff officers or diligence are already involved
- A winding-up petition is threatened or has been presented
Liquidation should not be used merely because dealing with HMRC is difficult. Equally, another instalment arrangement should not be used simply to postpone an insolvency that is already unavoidable.
What should I gather before asking for advice?
Useful information includes:
- A breakdown of HMRC arrears by tax
- Recent HMRC statements or correspondence
- Details of any Time to Pay arrangements
- Recent management accounts
- A current aged creditor list
- Bank balances
- Short-term cash-flow information
- Details of assets and finance
- Information about other creditor enforcement
- Any statutory demand, summary warrant, charge for payment or sheriff officer correspondence
- Any winding-up petition or court paperwork
Do not delay taking advice merely because some of this information is unavailable. The urgency of the enforcement stage may matter more than having perfectly prepared accounts.
HMRC Arrears FAQs
Can HMRC give my company more time to pay?
Potentially. HMRC can agree a Time to Pay arrangement where it considers the proposal realistic and affordable.
How long will HMRC give a company to pay?
There is no single fixed period that applies to every arrangement. HMRC considers the amount owed and what the company can realistically afford, while seeking repayment as quickly as reasonably possible.
What happens if I ignore HMRC letters?
HMRC can escalate collection through debt collectors, visits, formal enforcement, court proceedings and ultimately insolvency action.
What is a summary warrant?
It is a Scottish court procedure HMRC can use to enforce qualifying unpaid tax. Once granted, HMRC can instruct a sheriff officer to serve a charge for payment and, if the debt remains unresolved, use diligence.
How long do I have after a charge for payment?
HMRC’s current guidance states that a charge following its summary warrant procedure normally gives 14 days to pay or agree an instalment arrangement before further diligence may follow.
Can HMRC arrest my company’s bank account?
Bank arrestment is one of the diligence options available in Scotland after the appropriate enforcement stage has been reached.
Can HMRC shut my company down?
HMRC can petition for compulsory liquidation where the legal requirements are met. For a Scottish company, the winding-up petition is dealt with through the Scottish courts.
Does HMRC debt become my personal debt?
Not automatically. Taxes owed by a limited company are normally company debts. Specific exceptions can create personal liability in particular circumstances.
Should I use my own money to pay HMRC?
Not without considering whether the company is genuinely viable and how your personal money will be treated. Personal funding can sometimes support a viable recovery, but it should not be introduced simply to postpone unavoidable insolvency.
Can I put the company into CVL if it owes HMRC?
Yes. HMRC debt does not prevent directors from proposing a Creditors’ Voluntary Liquidation. Existing enforcement or a winding-up petition can complicate the position, so early advice is preferable.
HMRC chasing your Scottish company?
The earlier the position is reviewed, the more options the directors are likely to have.
If the business remains viable, we can consider whether a Time to Pay arrangement or another restructuring approach is realistic.
If the company can no longer pay its debts and there is no sustainable route forward, we can explain how a Scottish CVL works and what happens to the HMRC liability.
If sheriff officers, bank arrestment or a winding-up petition are already involved, tell us immediately because the stage reached can affect what can still be done.