My business has fallen behind with PAYE

PAYE is a form of tax that’s collected and held by businesses on behalf of HMRC. The tax body takes action quickly to recover any PAYE arrears that are due to them, and the financial penalties applied can be substantial.

PAYE payments include, but are not limited to, tax and National Insurance, Construction Industry Scheme (CIS), and student loan deductions, which may be due monthly, quarterly, or annually.

If your business has fallen behind with its PAYE obligations it’s important to contact HMRC as soon as possible, as the penalty regime applied to late and missed payments can significantly worsen your financial position if you don’t act quickly.

Financial penalties applied to PAYE arrears

The first time you miss a payment or make a late payment, it isn’t viewed as a default. Any further missed or late PAYE payments, however, incur penalties as a percentage of the amount owed. They also increase according to the number of defaults in a tax year¹:

• 1‐3 defaults: 1%
• 4‐6 defaults: 2%
• 7‐9 defaults: 3%
• 10 or more: 4%

Interest is charged daily on PAYE arrears, and if you only make a partial payment you’ll still incur a penalty. Further charges of 5% are made if arrears exist after six months and 12 months.

What to do if your business has PAYE arrears

Contact HMRC to discuss their Time to Pay scheme
When you get in touch with HMRC it’s important to be open about your company’s financial situation, as they may be willing to negotiate an instalment plan to pay off the arrears. An HMRC Time to Pay (TTP) arrangement typically offers struggling businesses an additional 612 months to pay tax arrears without incurring penalties.

A licensed insolvency practitioner (IP) can negotiate with HMRC on your behalf, and is well placed to present a solid business case for extra time to pay. Obtaining professional help in this way demonstrates your determination to repay the arrears, and shows that you aren’t deliberately avoiding payment.

Company Voluntary Arrangement (CVA)
If your business owes other debts in addition to PAYE, you may be eligible to enter into a Company Voluntary Arrangement, or CVA. This is a formal repayment plan that can write off any debts remaining at the end of the process.

A proposal to creditors, including HMRC, is developed and presented by a licensed insolvency practitioner, and allows for more affordable repayments to be made to support your business’ recovery.

Additional funding
You may be able to secure additional funding, either as a cash lump sum or as regular cash inputs, to improve the business’ ability to service debts. Alternative lenders, such as factoring companies and asset‐based lenders, typically offer flexible finance options that help boost cash flow for the long‐term.

When liquidation is the only option for PAYE arrears and other debts

If no other options are available due to the extent of your company’s financial decline, Creditors’ Voluntary Liquidation (CVL) ensures you fulfil your legal obligations as a company director.

It’s not advisable to wait for compulsory liquidation via a creditor’s winding up petition, as this leaves you open to misconduct allegations. Although it does mean your business must close down, a CVL offers you some control over the process.

You may also become eligible to claim director redundancy, which some directors use to pay for the procedure. At UK Liquidators, we can establish whether you’re entitled to make a claim, based on factors including your employment status and role within the company.

The benefits of professional help for PAYE debts

Obtaining professional support when your business has fallen behind with PAYE not only helps when negotiating with HMRC, but also ensures you take the correct route according to your individual circumstances.

You’ll know whether the company can be rescued via a restructuring programme or by entering HMRC’s Time to Pay scheme, and avoid substantial penalties given out for late or missed tax payments.

For more information on PAYE arrears please get in touch with our expert team. As we offer free, same‐day consultations, and operate a nationwide network of local offices, we can quickly present your best options.