Detailed information on how to negociate tax arrears with HMRC.

Can You Negotiate with HMRC?

Negotiating Tax Arrears with HMRC

My experience shows that a significant number of directors, including those well-versed in finance, often find themselves out of their depth when handling substantial VAT/PAYE arrears, typically in excess of £250,000.

Such situations frequently involve a financial director who, under immense pressure, might make critical errors due to the stress involved.

Accountants are often tasked with managing these negotiations with HMRC on their own, which can be unfair and may reflect a lack of understanding or engagement from the directors. This isolation can lead to mismanagement, and when issues arise, it often results in blame being assigned to various parties.

You need to understand that you are accountable for the company’s fiscal responsibilities. HMRC and the law are unequivocal: directors are held accountable regardless of any errors that may have occurred.

Historically, changes introduced on October 1st, 2015[1]Trusted Source – GOV.UK – A Guide to Compensation Orders, allowed creditors to seek compensation from disqualified directors, which has led me to believe that HMRC will increasingly pursue disqualifications for directors who mismanage their tax debts

If your business receives threatening letters from HMRC about tax arrears you are unable to repay, here’s what you should do:

1. Try to negotiate an HMRC Time to Pay agreement

If you’re unable to pay the tax liability upfront, organising a face-to-face meeting with a tax inspector to arrange a longer period to clear the debt should be your priority. If you are unable to arrange a face-to-face meeting, you should speak to the tax inspector on the phone.

The basics of the negotiations are that you will only get a maximum of twelve months to repay and, very often, far less than this. There are exceptions to this rule, but they are extremely rare.

You need to reach an agreement with HMRC on the amount of tax to be repaid and decide on a realistic period in which to do so. When considering the level of payments you can afford to make, you should also consider future tax payments, as they will also need to be made during this period. Do not overcommit your company, irrespective of HMRC pressure to do so; this will only adversely affect you later.

The most common cause of a time to pay failure is not taking into account other due or recurring taxes. If a default occurs, HMRC will not take kindly to this and will often take legal action and wind the offending company up.

You should prepare as much as possible for this meeting, and make sure you have any documents that might be relevant, including evidence of extenuating circumstances and tax debt forms.

HMRC will also want to see proof that you can repay what you say you can—and just as importantly, what you are doing to prevent the same problem from happening in the future.

You may meet a Field Officer who will also assess your assets—just in case. If the debt is over £100,000, then they will need to refer the matter to their HMRC superior, usually a manager.

2. Negotiate an HMRC Settlement

If your Time to Pay proposals are refused, negotiating a settlement is your next best option. In this meeting, you will be quizzed about the company in detail, so you should be prepared to respond to questions relating to the company’s financial status, legal organisation, past tax debts and more.

HMRC’s tax collectors can only act on the information they are given, so it’s important you divulge all the facts. No two businesses are the same, but HMRC is advised to treat each organisation reasonably, so approaching this process in the right way will play a big part in achieving the right result.

As some of the UK’s most experienced HMRC mediators, we can help

A lot of companies talk about negotiating settlements with HMRC for significant amounts of VAT/PAYE, but in reality, it’s something only a very select group of companies can do. The trouble is that some insolvency practitioners are more experienced at closing companies, not saving them, so negotiations are not within their comfort zone.

At Company, we have had as much success with HMRC as anyone and better than the majority. Many have been threatened or even served with Winding-up Petitions. In the vast majority of cases, we were able to rescue 85% and negotiate settlements with HMRC.

To discuss your VAT and PAYE arrears in confidence call 0800 074 6757 for immediate help and advice – no strings attached. Any initial consultation is free of charge and could be the first step in resolving your tax debt problems.


The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – A Guide to Compensation Orders