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I can’t pay HMRC – does my company need to liquidate?

Posted on: Friday 29th May, 2020

I can’t pay HMRC – does my company need to liquidate?

During the life time of a business, you may experience some financial hardship along the way which is detrimental to cash flow and the overall performance of your business. Whether it is a hiccup or a long term problem, you may be required to take action to reform your business. In order to maintain steady cash flow and a loyal customer base, your financial liabilities should be taken care of promptly and bills paid on time.

If you are in the position where you are unable to fulfil HMRC payments, such as VAT, Tax or PAYE, you must inform HMRC as soon as possible. If you fail to do so, you could be subject to penalties and interest for late payment. If you are struggling to pay HMRC as you are out of pocket, you will be required to either raise money to repay outstanding debt, restructure your company or result to liquidation which will mark the end of your business. Here are some options you can explore if you can’t pay HMRC:

Redundancy claims are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.
Tina Hill
Tina Hill

Time to Pay Arrangement

You may be able to negotiate payment terms with HMRC if you need more time to pay your tax bill. A Time to Pay Arrangement can be requested, this is essentially a formal request to HMRC to restructure your tax payments into affordable, monthly instalments over a typical period of 12 months. HMRC will judge your request based on the risk of insolvency, whether you can realistically keep up with payments and your reasoning behind your inability to pay HMRC.

In your request to HMRC, you will be required to provide the following information:

  • Your reason for non-payment
  • Your proposed monthly instalment total

Your TTP request should propose a realistic monthly instalment, as if overstated; the likeliness of your TTP Arrangement being accepted is slim. HMRC will also assess the long term viability of your business if the TTP Arrangement is granted.

Alternative Finance

Alternative finance, such as asset finance, can be used to take out a loan by using high value equipment as leverage in the event of non-payment. Invoice finance can be used to release cash from invoices which are yet to be paid, allowing early access to cash which can be used to pay outstanding HMRC bills. If your business is able to commit to alternative finance, this may help you raise cash to pay HMRC.

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Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement is used to restructure liabilities if the business has a real prospect of recovery. If there is no potential for the business to move forward, you may explore voluntary liquidation if a creditor hasn’t yet issued your business with a winding up petition. A CVA is an arrangement which allows you to renegotiate creditor terms and restructure this into affordable instalments to settle creditor debt.


If your business is at risk of insolvency or is insolvent, you may consider administration to protect your business from liquidation or dissolution. In order to bring about business recovery through administration, your business should have assets of value and a steady cash flow. Administration is typically an appropriate step to take if you have just started experiencing pressure from creditors, as it will prevent them from taking any further legal action against you.

If the business is currently experiencing early signs of financial distress, you may be able to avoid liquidation if the business has a real prospect of recovery. If the business falls into administration or liquidation as a result of insolvency, you may be eligible to redundancy pay.

Whilst it is an unfortunate situation, there may be light at the end of the tunnel by seeking director redundancy. An average claim is £9,000 per director when an insolvent company enters liquidation or administration. Call our team of expert advisors for early advice on 0800 063 9261 or complete the form. RCUK are Authorised and Regulated by the Financial Conduct Authority. Authorisation No 830522. You can check our registration here.

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