HMRC Debt Collection: What Happens When Your Company Can’t Pay

HMRC debt collection usually starts with letters and phone calls, then moves on to debt collection agencies and enforcement officers. If none of that works, HMRC can ask a court to close your company down. The good news is that HMRC would rather be paid than shut you down, and there’s usually room to agree a plan if you act early. 

At BCIA Recovery & Turnaround, we help directors deal with HMRC debt before it reaches the later stages, starting with a free, confidential consultation.

How HMRC Starts Chasing Unpaid Tax

Once a tax payment is late, HMRC starts adding interest straight away. Since 6 April 2025, the late payment interest rate has been the Bank of England base rate plus 4%, as ICAEW explains. Penalties can also apply, depending on the tax.

At first, HMRC will send letters and reminders and may phone you. If you don’t respond, an HMRC officer may visit your business to ask about your finances and try to agree a settlement, according to HMRC’s guidance on unpaid tax.

This is the best time to act. HMRC is still trying to agree a way forward, and you have the widest choice of options. BCIA can speak to HMRC about your company debt for you at this stage, so the conversation starts on the right footing.

When HMRC Uses Debt Collection Agencies

If HMRC can’t reach an agreement with you, it may pass the debt to a private debt collection agency. HMRC publishes the list of agencies it uses in its guidance on what will happen if you do not pay your tax bill, and they include Advantis Credit, Moorcroft Debt Recovery and BW Legal.

These agencies can contact you by letter, text or phone, take payment and agree a payment plan on HMRC’s behalf. They can’t visit your home or workplace, and they must be regulated by the Financial Conduct Authority. If you can’t pay or agree terms with them, the case goes back to HMRC.

If you’re contacted by an agency you don’t recognise, check its name against HMRC’s list before you pay anything. Remember that a collection agency’s job is to get money in quickly, and it may push for a payment plan the business can’t keep up. BCIA deals with the agency on your behalf and agrees to terms that work for the company, so you avoid a plan that fails a few months later.

What Enforcement Powers Does HMRC Have?

HMRC has strong enforcement powers, and unlike other creditors, it can use some of them without going to court first. They include:

• Taking control of goods: in England and Wales, HMRC can take and sell business assets to cover the debt. It must issue a notice of enforcement first, and it has to give at least seven days’ notice before goods are removed.
• Taking money from bank accounts: in some cases, HMRC can recover money directly from your bank or building society account.
• Court action: HMRC can take you to the County Court, which can lead to a County Court Judgment or a charging order on property.

Fees are added to the debt at each step. A notice of enforcement alone costs £75, and taking control of goods adds £235 plus 7.5% of any debt over £1,500. BCIA can step in before enforcement starts and help you avoid these extra costs.

Can HMRC Close Down Your Company?

HMRC can close down your company by asking the court to wind it up, though it usually treats this as a last resort.

The process often starts with a statutory demand, which gives the company 21 days to pay. If it doesn’t, HMRC can issue a winding-up petition for any debt of £750 or more. Once a petition is advertised, banks often freeze the company’s accounts, which can stop it trading.

It’s still possible to stop a winding-up petition if you act quickly, for example by paying the debt or agreeing terms before the hearing. If a petition has arrived, contact BCIA straight away.

Can Directors Be Personally Liable for HMRC Debt?

Directors aren’t usually personally liable for their company’s HMRC debt, but there are important exceptions. You can end up personally liable in certain situations:

• Unpaid National Insurance: under section 121C of the Social Security Administration Act 1992, HMRC can issue a personal liability notice if the company’s failure to pay was down to a director’s fraud or neglect.
• Tax avoidance, evasion or repeated insolvency: under Schedule 13 of the Finance Act 2020, HMRC can make directors jointly liable for company tax debts in some cases.
• Your own debts to the company: if you have an overdrawn director’s loan account, a liquidator can ask you to repay it.

Directors often don’t realise they’re exposed until HMRC raises it, and by then the options are narrower. BCIA looks at your personal position alongside the company’s from the start. If there’s a risk of a personal liability notice or a loan account claim, we’ll help you deal with it before HMRC does.

How to Stop HMRC Debt Collection

The surest way to stop HMRC debt collection is to agree a Time to Pay arrangement, which lets the company pay what it owes in instalments.

For smaller debts, you may be able to set one up online. VAT and PAYE debts of £50,000 or less can be spread over up to 12 months online, as long as all returns are filed. Larger debts need to be negotiated with HMRC directly.

HMRC sees a lot of payment proposals and can quickly tell which ones won’t hold. BCIA works out what the business can afford, prepares the figures HMRC will expect and negotiates the plan on your behalf. You go into the conversation with a proposal built to be accepted.

HMRC Debt Collection FAQs

These are the questions directors often ask BCIA about HMRC debt collection.

Will HMRC accept a CVA?

HMRC will usually accept a CVA if it believes the proposal is realistic and will give it a better return than closing the company.

As a large creditor, HMRC’s vote can decide whether a CVA is approved. HMRC’s guidance says it considers and votes on each proposal, so a well-prepared plan with honest figures gives you the best chance.

What happens if I miss a Time to Pay payment?

If you miss a Time to Pay payment, HMRC will usually contact you to try to rearrange the plan.

If the plan can’t be rescued, HMRC may cancel it and restart debt collection for the full amount. Tell HMRC as soon as you know you’ll struggle to make a payment.

Can HMRC chase me after my company is liquidated?

HMRC usually can’t chase you for your company’s tax debts after it’s liquidated, because those debts belong to the company.

The exceptions are a personal liability notice or joint liability notice from HMRC. A liquidator can also ask you to repay an overdrawn director’s loan account.

HMRC Debt Collection: The Key Points

When your company can’t pay its tax, HMRC moves from letters and calls to agencies, enforcement officers and, in the end, a winding-up petition. At each stage, your options get narrower and the costs go up.

The sooner you act, the more control you keep. BCIA Recovery & Turnaround has over 50 years of combined experience helping directors in financial distress. We’ll speak to HMRC for you and put forward a plan they’re more likely to accept. Get in touch for a free, confidential conversation.