It is possible to negotiate with HMRC about your company’s outstanding tax debts – such as VAT and Corporation Tax – and doing so is almost always preferable to ignoring the debt and waiting for enforcement action to follow.
Many directors assume HMRC is inflexible or that approaching them will make things worse. In practice, the opposite is usually true: HMRC has established debt collection processes for dealing with companies that cannot pay on time, and engaging proactively almost always produces a better outcome than staying silent.
That said, negotiation with HMRC works best when you approach it correctly, with the right information, a credible proposal, and a clear understanding of what HMRC will and will not agree to. This article sets out what negotiation with HMRC looks like in practice, what routes are available, and how to give your company the best chance of reaching an agreement.
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Negotiating with HMRC — at a glance
| Question | Answer |
| Will HMRC engage if I contact them? | Yes, HMRC has dedicated teams for business debt and will generally engage if you approach them proactively |
| What is the most common negotiated outcome? | A Time to Pay (TTP) arrangement which allows you to spread the debt over an agreed period, typically up to 12 months |
| Will HMRC reduce the amount owed? | Not usually, penalties may be waivable in limited circumstances, but the principal tax debt is rarely reduced |
| Can HMRC debt be formally restructured? | Tax debts can be restructured through a Company Voluntary Arrangement (CVA), which is legally binding on HMRC as a creditor |
| What makes HMRC more likely to agree? | Proactive contact, honest financial information, a credible repayment proposal, and a viable underlying business |
| What makes HMRC less likely to agree? | Ignoring correspondence, a history of missed payments, a company that is clearly not viable, or incomplete information |
Will HMRC negotiate with me or will contacting them make things worse?
This is the concern that holds many directors back from making contact, and it is understandable. But the reality is that contacting HMRC proactively, before they escalate the situation with formal enforcement action, is almost always the right move. HMRC's Business Payment Support Service (BPSS) exists specifically to handle situations where businesses are struggling to pay, and they deal with these calls every day.
Contacting HMRC does not trigger automatic enforcement action. It does not put you on a watchlist or accelerate the debt collection process. Instead, it allows you to open a conversation that, if handled well, can result in an arrangement that gives your company the breathing space it needs while it deals with its outstanding tax debts.
Actions such as ignoring HMRC correspondence, missing payment deadlines without explanation, and allowing the debt to grow while taking no action, are the things that lead to escalation, enforcement, and ultimately a winding up petition. HMRC is considerably more willing to work with directors who engage honestly than with those who go quiet and ignore the situation they are in.
What informal negotiation options are available?
Time to Pay arrangement
The most common outcome of negotiation with HMRC is a Time to Pay (TTP) arrangement which is a formal agreement to repay overdue tax in instalments over an agreed period, typically up to 12 months. This covers VAT, PAYE, Corporation Tax, and other HMRC liabilities. Interest continues to accrue during the arrangement, but penalties can be avoided if you engage before the relevant deadlines.
A Time to Pay is negotiated directly with HMRC and does not require court involvement or a formal insolvency process. It is by far the most accessible and commonly used route for companies with manageable HMRC debt.
Penalty appeal and reasonable excuse
Where HMRC has charged penalties for late payment or late filing, it is possible in some circumstances to appeal on the grounds of reasonable excuse. HMRC will consider appeals where there was a genuine reason the payment or filing could not be made on time, for example, a serious illness, a bereavement, or a technical failure outside your control. Simply not having enough money is not considered a reasonable excuse in itself, but the circumstances leading to the cash flow problem may be relevant.
Penalties that are successfully appealed are removed from the liability entirely. This is separate from the principal tax debt, which remains payable, but it can meaningfully reduce the total amount owed.
Requesting a review of an HMRC assessment
If you believe that an HMRC tax assessment is incorrect, for example, if HMRC has raised an estimated assessment because a return was not filed, or if there is a genuine dispute about the amount of tax due, you have the right to request a formal review or appeal to the Tax Tribunal. Pursuing a dispute does not suspend the debt in all cases, but it is worth taking advice on whether a disputed assessment might reduce the underlying liability before agreeing a repayment plan based on an inflated figure.
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What formal options exist for restructuring HMRC debt?
Company Voluntary Arrangement (CVA)
Where a company has significant HMRC debt alongside debts to other creditors, and where informal negotiation alone is not enough, a Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows the company to restructure all its unsecured debts, including HMRC liabilities, under a legally binding agreement supervised by a licensed insolvency practitioner.
HMRC votes on CVA proposals as a creditor, and they will consider proposals that offer a better return than liquidation. A CVA can result in HMRC agreeing to accept a reduced settlement or extended repayment terms that go well beyond what would be achievable through informal Time to Pay negotiation. Crucially, once a CVA is approved by creditors holding 75% of the debt by value, it binds all unsecured creditors, including those who voted against it.
Company Administration
If HMRC has already issued a winding up petition, or if enforcement action is imminent and the company needs immediate protection, Company Administration triggers an automatic moratorium that suspends all creditor action, including any started by HMRC, while the administrator works to rescue the business or achieve a better outcome for creditors. Administration is a more complex and typically more expensive route than a Time to Pay or CVA, but in urgent situations, it can buy the time needed to develop a viable solution.
How should I approach HMRC to negotiate?
The way you approach HMRC matters almost as much as what you are proposing. These practical steps will give you the best chance of a productive outcome:
- Contact HMRC before the debt is overdue where possible, or as soon as possible after the deadline if you have already missed it. The earlier you make contact, the more goodwill you generate, and the more options remain open.
- Have your financial information ready as HMRC will want to understand your company's financial position. Up-to-date management accounts, a cash flow forecast, and a clear breakdown of the outstanding liabilities are all helpful.
- Come with a specific proposal rather than asking HMRC to suggest terms themselves. Ensure you propose a realistic monthly payment amount and duration that you are confident the company can sustain. HMRC responds better to directors who have done their homework.
- Be honest about the company's position. Remember, HMRC has access to your filed accounts, VAT returns, and PAYE records. Understating the problem or overstating the company's recovery prospects is counterproductive and can damage your credibility in the negotiation.
- Keep current obligations up to date. HMRC is far more willing to agree a Time to Pay for historic debt if you are demonstrating that you can manage the ongoing liability. Falling further behind while negotiating about the arrears is a significant red flag.
- Consider using a professional to help with the negotiations, particularly for complex cases, significant debts, or where HMRC has already begun enforcement action. In these instances, having a licensed insolvency practitioner or tax adviser negotiate on your behalf can make a meaningful difference to the outcome.
What will HMRC not agree to?
Understanding the limits of what is negotiable helps you focus your efforts and avoid wasting time on approaches that will not succeed.
- HMRC will not write off principal tax debt through negotiation. The amount of tax owed does not reduce simply because the company is struggling. The only routes to genuine debt reduction are a CVA (where creditors agree to accept less) or insolvency (where the debt is written off on dissolution).
- HMRC will not agree to a Time to Pay if the company is clearly not viable. If the business cannot realistically sustain the proposed repayments alongside its ongoing obligations, HMRC may decline your company’s proposal and proceed to enforcement.
- HMRC will not agree to open-ended arrangements without a clear end date. Proposals that ask for indefinite forbearance without a defined repayment schedule are unlikely to be accepted.
- HMRC will not continue a Time to Pay if you miss payments or fall behind on current obligations. A single missed payment can cause the entire arrangement to default, making the full outstanding balance immediately payable. Therefore, if you are looking at negotiating a Time to Pay with HMRC, ensure your company is in a position to adhere to the agreement for the duration.
What if negotiation with HMRC is not enough?
A Time to Pay or informal negotiation works best where the HMRC debt is a contained problem, such as a temporary cash flow difficulty that has been addressed. Where the HMRC debt is part of a broader picture of financial distress, negotiation with HMRC alone may not be sufficient to resolve the company’s underlying situation.
If your company is insolvent, meaning it cannot pay its debts as they fall due and has no realistic prospect of recovery, the most responsible course of action is to seek professional advice about formal insolvency options.
A Creditors' Voluntary Liquidation (CVL) allows directors to close the company in an orderly way, with HMRC's debt written off alongside other unsecured creditor liabilities on dissolution. Acting voluntarily when it comes to liquidation is always preferable to waiting for HMRC to petition the courts and force the company into compulsory liquidation.
How UK Liquidators can help
We help directors navigate HMRC debt situations every day, from advising on Time to Pay proposals and penalty appeals, through to formal insolvency processes where appropriate. Whatever stage you are at, taking advice early gives you the most options.
All insolvency practitioners at UK Liquidators are fully licensed and regulated. We offer a free initial consultation with no obligation, operate from over 100 offices across the UK, and treat every conversation as strictly confidential. Call our team today or take our free 60 Second Test to get an immediate assessment of your options.
Frequently asked questions
Can I negotiate with HMRC myself or do I need a professional?
You can contact HMRC directly yourself, there is no requirement to use an adviser, particularly for straightforward Time to Pay requests of small amounts. However, for larger debts, complex situations, or where HMRC has already begun enforcement action, having a licensed insolvency practitioner in your corner can significantly improve the outcome. They understand what HMRC considers acceptable, how to frame a proposal, and how to handle pushback. Their involvement also signals to HMRC that you are taking the matter seriously.
How long does it take to agree a Time to Pay arrangement with HMRC?
In straightforward cases, a Time to Pay can be agreed on the same call with HMRC's Business Payment Support Service. More complex cases, particularly where the debt is large, where other company debts are involved, or where HMRC wants to review financial information before agreeing, may take several calls and a few days or weeks to finalise. Throughout this period, it is important to keep any current tax obligations up to date and to maintain regular contact with HMRC if discussions are ongoing.
What happens if HMRC refuses to negotiate?
If HMRC refuses a Time to Pay request, for example, because they do not believe the company is viable or the proposed repayments are realistic, they will typically continue with debt collection and enforcement. At this point, the options narrow: you can revise and resubmit a more credible proposal, appeal HMRC's decision through their internal review process, or take professional advice about whether a formal insolvency route is the more appropriate path. A refusal is not necessarily final, but it does signal that HMRC has serious concerns about the company's ability to repay.
Can HMRC negotiate on personal tax debts as well as company debts?
Yes, HMRC's Time to Pay scheme covers personal tax debts including Self Assessment liabilities, as well as company debts. If you have both personal and company tax debts, these are dealt with separately, the company Time to Pay and any personal Time to Pay are distinct arrangements with HMRC. As a company director, it is worth being aware that personal tax liabilities do not disappear if the company goes into liquidation, they remain your personal obligation and will need to be addressed separately.
Will negotiating with HMRC affect my company's credit rating?
A Time to Pay arrangement is not publicly registered and does not appear on the company's credit file in the way that a County Court Judgment, winding up petition, or formal insolvency would. Entering into a TTP is a private arrangement between the company and HMRC. However, if HMRC has already taken public enforcement steps, such as registering a tax charge or filing a winding up petition, those may already have affected the company's credit profile, and a subsequent TTP will not undo that.
