Business tax arrears: what HMRC does next, and what you can do about it

If your company has missed an HMRC deadline, the first move is to contact HMRC and ask for a Time to Pay arrangement, which spreads what you owe into monthly instalments. On interest alone that is usually the cheapest way out: HMRC charges 7.75% a year on what is unpaid, which is lower than the rate on a business loan, including ours. Missing a payment date is more common than it feels from the inside, and HMRC's process starts with a conversation rather than enforcement – but it starts with you getting in touch.

‍

What counts as business tax arrears

Your company is in tax arrears as soon as an HMRC payment deadline passes with the bill unpaid. It covers VAT, PAYE and National Insurance, Corporation Tax, and any other HMRC liability.

It is usually a timing problem rather than a business in trouble. Our research in April 2026, a survey of 1,005 small business owners, found the average small business is owed £22,000 in payments – often the money a tax bill was meant to come out of. That gap bites hardest if your customers pay on long terms or your income is seasonal, because the tax deadline does not move with them.

Being in arrears does not change what you owe. What changes is that interest starts, and for VAT a penalty clock starts too. So it helps to be clear about which date you have missed: the deadline to pay a VAT bill, the monthly date for PAYE and National Insurance, or your Corporation Tax deadline.

‍

What tax arrears cost from the day after the deadline

HMRC sets late payment interest at the Bank of England base rate plus 4%, which has applied since 6 April 2025. With the base rate at 3.75%, that gives 7.75% a year, the rate in force since 9 January 2026 (HMRC interest rates for late and early payments). The same rate covers VAT, PAYE, and Corporation Tax, so one figure applies to everything your company owes HMRC. It keeps running while you pay a bill off in instalments.

VAT carries late payment penalties on top, and they step up on two dates worth knowing before you do anything else:

• Up to 15 days overdue, there is no late payment penalty at all.
• Between 16 and 30 days overdue, you get a first penalty of 3% of the VAT you still owed at day 15.
• At 31 days or more, that first penalty becomes 3% of what you owed at day 15 plus 3% of what is still outstanding at day 30, and a second penalty starts, charged daily at 10% a year until the balance is clear.

These rules cover VAT accounting periods starting on or after 1 January 2023, and asking HMRC for a payment plan inside those windows can mean lower penalties, or none at all (how late payment penalties work if you pay VAT late). PAYE and Corporation Tax work differently, and the late payment penalties for each tax are set out separately.

Every figure on this page was checked against GOV.UK on 14 October 2026.

‍

How to ask HMRC for a Time to Pay arrangement

Start with HMRC's online payment plan service, which checks whether your company is eligible, so you will know quickly where you stand. If you cannot set a plan up online, call HMRC's Payment Support Service and ask for a Time to Pay arrangement.

To set one up you will need:

• The reference number for the tax you cannot pay, which is usually on the letters HMRC has sent.
• UK bank account details you are authorised to set up a Direct Debit from.
• Details of your company's income and spending.

HMRC will ask how you can pay the bill as quickly as you can manage, and it expects the company to reduce the debt as much as possible first, by releasing assets like stock, vehicles, and shares. It may also ask directors to put personal funds into the business, accept lending, or extend credit (if you cannot pay your tax bill on time). That is HMRC's expectation rather than our suggestion, and it is worth knowing it will come up before you make the call.

Be realistic about the monthly figure you propose, because HMRC only agrees a plan it believes you can keep to, and new tax bills still have to be paid on time alongside it. If another bill falls due while a plan is running, ask HMRC whether it can be added before that date rather than letting it go unpaid. And if you are going to miss an instalment, say so before the payment is due rather than after: break a VAT arrangement and HMRC charges the late payment penalties as though it had never existed. If no plan can be agreed at all, HMRC will ask you to pay what you owe in full.

There is no deferral scheme to apply for instead. The VAT deferral scheme set up during the pandemic closed on 30 June 2021, and deferred VAT from that period is treated like any other overdue VAT.

Going into the call with your own figures – what you owe on each tax, what you can pay each month, and when – makes the conversation a great deal shorter.

‍

{{tax-blog-cta="/seo-components"}}

‍

What HMRC does if you do not get in touch

HMRC will always try to contact you if you miss a tax payment, and it uses its enforcement powers only as a last resort. Replying is what keeps a payment plan on the table.

Before it takes any action, except where it suspects fraud or criminal activity, HMRC says it will try to contact you to talk about your situation and agree a way forward. At that point it may offer a Time to Pay arrangement based on your financial position, or use tax it owes you to clear what you owe it.

If you do not respond, or refuse to pay, HMRC's debt management teams have two next steps. An officer may visit your home or business address to go through your finances and agree how to settle the debt. Or HMRC may pass the case to a debt collection agency.

An agency working for HMRC will only contact you by letter, text message, or phone, and it will never visit you at your home or place of work. Every agency HMRC uses is regulated by the Financial Conduct Authority, and HMRC publishes the list of the agencies that may contact you, so you can check whether a caller is genuine. The agency can agree a Time to Pay arrangement with you in the same way HMRC can, and if you cannot pay or agree a plan, your case goes back to HMRC.

Enforcement powers come after that, and only if HMRC cannot reach you, you refuse to pay, or the agency returns the case. They differ across England, Wales, Scotland, and Northern Ireland, and HMRC picks the one that fits the circumstances. It can:

• Take things the company owns and sell them. In England and Wales it issues a formal notice of enforcement first, which costs £75, and it says it will always warn you and give you a chance to pay before removing anything.
• Take money directly from the company's bank account, in England, Wales, and Northern Ireland, where £1,000 or more is owed and there is enough in it to cover the debt and reasonable costs.
• Take the company to court.
• Close the company down, if the tax is a business tax.

Costs such as auction fees are added to the debt (what will happen if you do not pay your tax bill). HMRC applies to the courts to make a company insolvent only as a final course of action, after it has considered every other way to recover what it is owed.

Your company's tax is the company's debt, so as a director you are not usually personally liable for it. The exceptions are narrow, and they are a question for an accountant or a solicitor rather than a lender.

‍

If no payment plan is affordable

Some arrangements only move the problem along. If your company cannot meet a realistic monthly payment, borrowing will not fix that either, and the useful step is advice rather than another plan.

Start with your accountant, who can confirm what is owed and when, and help you put a proposal to HMRC that stands a chance. If the position is wider than one tax bill, a licensed insolvency practitioner can explain the formal routes, including a company voluntary arrangement. The earlier you ask, the more of those options are still open.

‍

Can a business loan help you pay off tax arrears?

Usually not, once the bill is already with HMRC. A loan will not reduce what the arrears are costing you, and it will not fix a bill your company cannot afford to repay.

Start with the numbers. HMRC charges 7.75% a year on what is unpaid. Our representative rate is 3.33% per 30 days, which our business loan calculator turns into figures for your own bill. For a bill that is already overdue, the arithmetic points at HMRC.

There is a second reason to deal with HMRC first. Arrears can show up in credit checks and count against an application, so being behind makes borrowing harder just when you might most want it. It is worth seeing what a lender would see before you apply anywhere. Credit Compass is our free tool, with no paywalls or hidden fees: it shows your Equifax business credit score, the factors affecting it, and the areas you could focus on. You do not have to borrow anything to use it.

Borrowing earns its place a step earlier than this. Before the deadline, when the bill is not yet overdue and the money to cover it is genuinely on its way, paying HMRC on time is worth more than it costs. If a VAT or Corporation Tax bill is due before your cash comes in, an iwoca Flexi-Loan, our business loan with flexible repayment options, lets you pay it on time and repay early for free once your sales catch up. You choose a fixed term of between 12 months and five years, and because there is no fee for repaying early you only pay interest for as long as you actually hold the money. Every new Flexi-Loan needs a personal guarantee from at least one director, and we lend to UK limited companies.

Flexi-Loan in action: Dovetail and Slate

A seasonal dip put pressure on cash flow at Guy Walker's recruitment business, and he needed funding to cover VAT, salaries, and supplier bills until revenue picked up. He bridged the gap without committing to funding for longer than he needed, repaying as cash flow recovered. Read Guy's story.

‍

Business tax arrears FAQs

How long will HMRC give my company to pay?

There is no set length. HMRC decides on what your company can afford, and expects the bill cleared as quickly as you can manage.

Its own debt management guidance treats arrangements running beyond 12 months as exceptional. Because interest runs on the balance throughout, a shorter plan costs you less in the end.

‍

Can HMRC write off a company's tax debt?

Not on request. A Time to Pay arrangement reschedules what you owe rather than reducing it, and interest keeps running on the balance.

Through a company voluntary arrangement, which a licensed insolvency practitioner has to propose to creditors, HMRC can agree to accept less than the full amount. That is an insolvency process rather than a negotiation you can open yourself.

‍

Will tax arrears affect my company's credit score?

What a lender or a supplier can see is the public record, and a tax bill you are behind with is not on it. A county court judgment against the company, or a winding-up petition, is.

A plan you keep to is what keeps the position off that record. Either way, it is worth checking your business credit score before you apply for anything.

Check the figures with an accountant. This is general information about company tax arrears rather than tax or financial advice, and your own circumstances may change the answer.