A Guide to PAYE Arrears

PAYE is the tax you deducted from your employees’ wages. If you collected it and did not pay it to HMRC, you are holding money that was never yours to spend.

HMRC knows the exact amount because you reported it through RTI. They will pursue it more aggressively than almost any other tax debt because they consider it theft from the public purse.

That is the legal position and it does not soften. PAYE arrears are the most common trigger for HMRC enforcement action against UK companies.

It is worth being honest about how it happens, because it is almost never theft in the way the framing suggests. It is a Friday, the wages have to go out, the customer who owes you has not paid, and the PAYE is the only pot you can reach.

You tell yourself you will catch it up next month. Nobody sets out to be here.

Unlike Corporation Tax, where the debt is the company’s own tax liability, PAYE is money you collected from your employees and were supposed to pass to HMRC.

That distinction matters legally and practically. HMRC can issue personal liability notices to directors for unpaid PAYE, and it is a preferential debt in insolvency.

Preferential means it gets paid out of whatever is recovered before the ordinary creditors see anything, which is why we rarely see HMRC compromise on it.

Directors who treat PAYE as a flexible cash-flow buffer tend to find out, usually late, that it is the fastest route to a winding-up petition of any debt they hold.

Quick Answer: What to Do When You Cannot Pay PAYE

Call HMRC’s Business Payment Support Service on 0300 200 3835 immediately. Ask for a Time to Pay arrangement, which is an instalment plan letting you clear the arrears over months instead of in one payment.

PAYE is due by the 22nd of each month (or 19th if paying by post). If you know you cannot meet the next deadline, call before it passes. HMRC is more willing to negotiate before you are in default than after. If you are already months behind, call anyway: a late arrangement beats no arrangement.

Of every tax debt a company can carry, this is the one to deal with first. It creates personal liability, it ranks ahead of ordinary creditors in insolvency, and HMRC chases it faster than anything else.

Every week of delay adds to the debt and to your own exposure, not just the company’s.

Why PAYE Debt Is More Dangerous Than Other Tax Debts

Three features make PAYE uniquely dangerous for directors.

First, personal liability notices. Under the Income Tax (PAYE) Regulations 2003 and the Social Security Contributions Regulations, HMRC can issue personal liability notices to directors for unpaid PAYE income tax and employee National Insurance contributions.

These are personal debts: they survive the company’s liquidation and can be enforced against your personal assets. This route does not exist for VAT or Corporation Tax.

Second, preferential creditor status. PAYE and employee NICs have been secondary preferential debts since December 2020.

In liquidation, HMRC’s PAYE claim ranks ahead of floating charge holders and unsecured creditors in the creditor priority order. A floating charge is security a lender holds over assets that keep changing, such as stock, cash and unpaid invoices.

So HMRC recovers more from PAYE than from Corporation Tax, which makes it less inclined to negotiate and more willing to petition. The ranking is doing the work, not the case officer.

Third, real-time reporting. HMRC knows exactly what you owe because you reported it through RTI (Real Time Information) with every payroll run. There is no ambiguity about the amount.

You told HMRC what you deducted, and they know to the penny what you have not paid over. Directors still arrive hoping the figure is fuzzy and there is room to argue. There is not. RTI ended that.

HMRC Enforcement Timeline for Unpaid PAYE

HMRC moves faster on PAYE than on most other tax debts. The typical sequence is set out below.

Two terms in that table do the damage. A statutory demand is a formal written warning giving you 21 days to pay before a creditor can petition to wind the company up.

The London Gazette is the government’s official journal of public notices. It is free, anyone can search it, and your bank watches it. Publishing the petition there is what the law calls advertising it.

Stage	What HMRC does
Month 1	Payment missed. HMRC’s system flags the non-payment automatically. A generic reminder may be generated.
Months 2 to 3	Formal demand letters arrive. Late payment interest applies at 7.5%. Repeat-default penalties run from 1% to 4% in a tax year.
Months 3 to 6	Enforcement agents (bailiffs) may be instructed, or a statutory demand sent for debts over £750. We see referrals as early as 3 months in.
Months 6 and beyond	Winding-up petition filed and advertised in the Gazette. Your bank freezes the accounts on seeing it. The hearing follows 6 to 10 weeks later.

The threshold for petitioning is not the amount owed. It is HMRC’s assessment of whether you are going to pay voluntarily. PAYE arrears, more than any other tax type, signal that you have already crossed that line.

The smallest PAYE petition we have dealt with was under five figures. The size of the debt is not what triggers it; the pattern of non-payment is.

Director Personal Liability Notices for PAYE

This is the risk that separates PAYE from every other tax debt. HMRC can issue a personal liability notice (PLN) to any director who was responsible for the company’s tax affairs during the period the PAYE was unpaid. The notice makes you personally liable for the unpaid PAYE and employee NICs.

A PLN is a personal debt. It survives the company’s liquidation. HMRC can enforce it through county court judgement, bailiffs, charging orders against your property, and ultimately bankruptcy proceedings.

The charging order is the one that changes the conversation in our experience, because it attaches to the house rather than to the business.

The notices we see land for £20,000 to £50,000, and they arrive months after the company was dissolved, at a home address, addressed to someone who thought the whole thing was behind them.

They assumed the problem ended with the company. It did not.

You can appeal a PLN within 30 days of receiving it. Grounds for appeal include: you were not a director during the relevant period, you had no responsibility for the company’s tax affairs, or the amount is incorrect. Get specialist tax advice the day one arrives. The 30-day appeal window is strict, and it is not extended because you were waiting to see what happened.

Time to Pay for PAYE: How to Negotiate With HMRC

The process is the same as for other HMRC debts, but the context is different because PAYE arrears signal that you have been using employee tax deductions as working capital, which HMRC treats seriously.

• Call 0300 200 3835. Explain the position honestly. HMRC already knows the amounts from RTI.
• Propose a realistic repayment schedule. 6 to 12 months is typical. You must continue to pay current PAYE on time during the TTP.
• Demonstrate viability. HMRC will ask whether the business can sustain the repayments plus current obligations. If it cannot, TTP is not the right tool: insolvency advice is.
• Be current on other taxes. A TTP for PAYE when you are also behind on VAT and Corporation Tax is a much harder negotiation.

HMRC is markedly less willing to agree Time to Pay on PAYE than on Corporation Tax, for exactly the reasons above: it already has the personal liability route and the preferential ranking, so it needs the deal less than you do.

The earlier you call, the better the odds. A director who rings before the first payment is missed carries far more credibility than one who rings six months in with the same explanation.

What You Should Do About PAYE Arrears Right Now

1. Call HMRC today. 0300 200 3835. Do not wait for the next payroll date.
2. Continue running payroll and filing RTI submissions on time. Falling behind on filing as well as payment creates additional penalties and destroys your credibility with HMRC.
3. Check your personal exposure. If HMRC issues a PLN, you need personal legal advice. Director liability for PAYE is personal, not corporate.
4. If PAYE arrears are part of a wider cash-flow crisis, speak to a licensed insolvency practitioner. A TTP fixes a timing problem. It does not fix an insolvent business.

PAYE arrears are what we see behind a large share of the HMRC files that reach us, and the directors who come out of it best are almost always the ones who called while the arrears were still one number rather than three.

Company Debt’s licensed insolvency practitioners deal with HMRC PAYE debt every day. A free, confidential consultation will tell you where you stand and what your options are.

FAQs on Unpaid PAYE

Related Guides

Where directors go next once PAYE arrears are on the table.

• HMRC Time to Pay: how instalment arrangements work and when HMRC refuses one.
• Can’t Pay VAT and Can’t Pay Corporation Tax: the sibling guides, and why those debts behave differently.
• Director Personal Liability: what survives the company, including personal liability notices.
• HMRC Winding-Up Petitions: what happens if PAYE arrears reach the petition stage.
• Which Creditors Get Paid First: where PAYE sits in the queue and why that changes HMRC’s behaviour.
• 30-Second Insolvency Test: check whether this is a timing problem or an insolvency one.