Can’t Pay PAYE? PAYE Arrears Guide

What Happens if you Can’t pay PAYE?

If you are unable to pay your PAYE, the process begins with an automated reminder from HMRC, which urges you to settle your outstanding dues promptly. This correspondence will also detail the payment methods available.

Should you fail to manage your PAYE debts adequately, HMRC will escalate the matter. Initially, they impose late payment penalties, which vary depending on your history of defaults.

If you are completely unable to make payments, the penalties will gradually increase. This escalation can lead to increasingly stern warnings and, eventually, legal action.

In severe cases, under the Insolvency Act 1986, HMRC has the authority to force your company into liquidation through a Winding-up Petition, a step they take more frequently than other creditors.

Ignoring the problem is the worst approach. Whether you are facing cash flow issues or if the delayed PAYE payments are a symptom of deeper financial troubles, it is crucial to maintain open communication with HMRC.

What is the Penalty for Late Payment of PAYE?

The penalties for late payment of PAYE (Pay As You Earn) in the UK depend on the frequency of the late payments and the amount of time the payment is overdue. Here’s how it generally breaks down:

1. 1 to 3 days late: No penalty, but HMRC might contact you to ensure future payments are made on time.
2. More than 3 days late: Penalties start to apply. These penalties are calculated as a percentage of the amount that is late. The rates are:
   • 1% to 5% of the unpaid tax, depending on the number of times payments have been late in a tax year.
3. 6 months late: An additional penalty of 5% of the unpaid tax at that date.
4. 12 months late: Another 5% penalty on the still unpaid tax.

These penalties are in addition to any interest that HMRC may charge on the unpaid amounts from the date the payment was due until the date payment is made.

It’s important to note that HMRC may consider reasonable excuses for late payment on a case-by-case basis, and penalties may be reduced or waived if you can demonstrate that you had a reasonable excuse for the delay. Always communicate promptly with HMRC if you anticipate payment difficulties.

Can we help?

Use the live chat if you have a question right now, or call an expert on 0800 074 6757 for free, confidential advice about your situation. We’ve helped 1000’s of stressed directors navigate difficult circumstances.

What are the Options When You Can’t Pay PAYE arrears to HMRC?

We have a great deal of experience helping small companies that cannot pay PAYE and have HMRC arrears issues.

As well as being experienced negotiators with HM and Revenue, we can advise you of the full range of options available for someone in your situation. With PAYE specifically, these include:

Time to Pay Arrangement (TTP) for PAYE

If you’re unable to pay in full, you may qualify for a Time to Pay Arrangement. This is a formal agreement with HMRC that allows you to spread your payments over a longer period, which can be tailored to your financial situation.

To set this up, you’ll need to contact HMRC directly, provide details of your financial situation, and propose a payment plan.

In order to qualify you will be expected to demonstrate that the company can afford to repay the PAYE over a maximum of 12 months, that you have proper compliance measures in place for tax payment management for all forthcoming tax deadlines.

Company Voluntary Arrangement

For many companies that can’t pay PAYE, have corporation tax arrears, or have VAT debt, these tax problems are often a symptom of a larger problem.

If other creditors are threatening, a Company Voluntary Arrangement (CVA) can offer a better solution than a Time to Pay Arrangement. You can delay tax and creditor payments for up to 5 years, and the debt itself can be discounted!

Although a CVA is considered an insolvency procedure, it does not mean the company goes bust. It is a rescue mechanism that can help a company get back on its feet. In the right circumstances, the CVA can be a formidable company rescue tool.

Insolvency Options

If your company cannot meet its PAYE obligations and is insolvent, Creditors’ Voluntary Liquidation (CVL) may be an option. This process involves voluntarily winding down your business under the guidance of an insolvency practitioner.

In a CVL, the company’s assets are liquidated, and the proceeds are used to pay off creditors, including settling outstanding PAYE debts to HMRC. This action effectively writes off any remaining arrears once the assets are exhausted.

Could You be Held Personally Liable for PAYE arrears?

If the government suspects that you have deliberately or intentionally failed to pay your statutory tax duties, it has the right to submit a Personal Liability Notice (PLN).

As per Section 121C, Social Security Administration Act 1992, PLN’s give HMRC the power to hold company directors personally accountable in situations where there appears to be fraud or serious neglect.

Call us now for confidential expert help

If you’re feeling stressed and under pressure with PAYE debts, please call one of our confidential advisers for a free consultation. Over the last year, we’ve negotiated over £2,000,000 with HMRC. Call us on 0800 074 6757.