Is my company insolvent if it can’t afford to pay HMRC?

If your company can’t afford to pay its bills as they fall due it means it’s entered cash flow insolvency. Being unable to pay HMRC is a serious matter, and you may face enforcement measures by the tax body to recover the debt unless you take action quickly.

If the company is insolvent it may be the case that it must cease trading immediately, however, you should seek professional advice from a licensed insolvency practitioner (IP) on how to proceed.

Why is it important to act quickly if you can’t pay HMRC?

HMRC takes enforcement action quickly in recovery of their debts, and could present a winding up petition at court if they believe your business is experiencing long-term financial difficulty. This could force your company into liquidation and lead to its closure.

They’re typically a large creditor in insolvency cases and you may owe debts in relation to several types of business tax. If you can convince HMRC that your company’s financial decline is temporary, or is due to a specific problem that can be remedied, you may be accepted onto the Time to Pay scheme.

What is HMRC Time to Pay (TTP)?

HMRC operates a scheme that allows companies in arrears extra time to pay. Their Time to Pay (TTP) arrangement is a negotiable instalment plan that pays off arrears, but you also need to keep up with your current tax obligations.

The amount of extra time companies are granted generally depends on their circumstances and history of repayment. The speed with which directors have contacted the tax body regarding the arrears is also important.

Extra time if you can’t afford to pay business taxes

Businesses are commonly allowed an extra 3-6 months, but you may be eligible for more time depending on the company’s position. It’s advisable to seek professional guidance when applying for a TTP, as HMRC does require supporting evidence with every application.

Cash flow and sales forecasts will be expected, plus an explanation of how you’ll adjust business operations to release the funds needed for the TTP. A licensed insolvency practitioner can help you negotiate with HMRC, or do so on your behalf, and instil confidence that your company can afford the TTP payments.

What can you do if your business is in tax arrears?

If your company can’t afford to pay HMRC, it doesn’t necessarily mean the end for the business. This is because the UK operates a robust insolvency regime that focuses on business rescue rather than closure.

There may be options that provide additional working capital so you can continue on. For example:

• Alternative funding in the form of asset-based lending or invoice finance. This can provide the lump sum or regular cash inputs you need to pay HMRC and other creditors.
• Another potential option if you have multiple unsecured debts that you’re struggling to repay, is a Company Voluntary Arrangement (CVA). This involves negotiating with creditors and formally restructuring the company’s debts within a legally binding agreement.
• Additionally, entering administration can protect the company if HMRC or other creditors are threatening to present a winding up petition, offering the time needed to make a plan without creditor pressure.

If the business can’t be rescued, Creditors’ Voluntary Liquidation (CVL) enables you to minimise creditor losses and fulfil your legal duties as a company director. UK Liquidators can advise on this and provide the reliable independent guidance you need on the best way to proceed.

Please contact our expert team to arrange a same-day consultation free-of-charge. We operate a broad network of offices nationwide, so you’re never far away from professional support.