Dealing with tax arrears

Your business may be able to negotiate additional time to pay its tax debts with HM Revenue & Customs.

If your business falls behind on its tax payments, whether it's VAT, corporation tax, PAYE or National Insurance contributions, HM Revenue & Customs (HMRC) is likely to quickly alert you and, if necessary, take action to recover the money.

HMRC will alert you about your business' debt by sending you a warning letter. Often, these letters give you just seven days to respond and pay the money you owe.

To avoid this kind of enforcement action, contact HMRC as soon as you know you've missed a tax payment or won't be able to pay on time.

If your business is unable to pay what it owes to HMRC, you might be able to set up a Time to Pay (TTP) Arrangement. There are alternative arrangements too. Read on to find out more.

What is a Time to Pay Arrangement?

A Time to Pay (TTP) Arrangement allows you to pay your debt to HMRC in monthly instalments, typically over a period of up to 12 months. You might be able to arrange repayment over a longer period, depending on your business' circumstances and what you can afford.

How exactly you make a TTP Arrangement depends on whether you've received a payment demand, such as a tax bill, or a letter threatening you with legal action.

If you have received a payment demand, call the HMRC office that sent you the letter. If you haven't, call the Payment Support Service (PSS) on 0300 200 3835 (Monday to Friday, 8am to 6pm, not including bank holidays).

Nominated partners in business partnerships can try to negotiate a Time to Pay Arrangement with HMRC on behalf of the partnership or themselves as individuals.

What happens if I fail to fulfil my Time to Pay Arrangement?

If you don't make the payments set out in your Time to Pay Arrangement on the dates they are due, or you accrue new debts, HMRC can terminate the arrangement and insist that you pay all debts in full immediately.

Alternatives to a TTP Arrangement

If your business has a problem with tax arrears, some alternative options are available, including the following:

  • To protect your company from legal action HMRC chooses to pursue, entering into:
    • a company voluntary arrangement (CVA) - this can also allow your business time to work out an alternative payment plan
    • administration (this is when a person or business from outside your company comes in to run it)
  • To help pay your debts to HMRC, raising funds via financing, invoice factoring or another method
  • Closing the company down via administrative dissolution or liquidation (winding up)

Before deciding what action to take, it's sensible to seek independent advice.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

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