A Guide to PAYE Arrears

PAYE is the income tax and employee National Insurance you deducted from your staff’s wages. If the company kept it instead of paying it over, it has been spending money that was only ever held for HMRC.

HMRC knows the exact figure, because your payroll software reported it through Real Time Information (RTI) every time you ran payroll. There is nothing to estimate and very little to argue about.

It is also the easiest tax to fall behind on. On payday the money is already in the company account, and nothing forces it out until HMRC’s deadline on the 22nd, so it is the obvious pot to borrow from when a customer pays late.

That is why it needs a different response from Corporation Tax or a late supplier. If the company fails, unpaid PAYE is paid before the bank’s floating charge and the ordinary suppliers, so HMRC has more to gain from closing it down. It also moves towards a winding-up petition faster on PAYE than on most tax debts.

Quick Answer: What Happens if You Cannot Pay PAYE

Interest runs from the deadline, penalties follow repeated late payments, and unpaid PAYE can reach bailiffs, a statutory demand (a formal 21-day demand for payment) or a winding-up petition from about three months after the first missed payment.

HMRC can also make a director personally liable for unpaid National Insurance where the failure was down to that director’s fraud or neglect. Running short of cash is not, on its own, enough.

The way out at this stage is a Time to Pay arrangement, an instalment plan that clears the arrears over months instead of in one payment. Call HMRC’s employer PAYE payment problems line on 0300 200 3819 and ask for one.

PAYE is due by the 22nd of each month, or the 19th if you pay by post. If you can, call before the deadline passes, because 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.

What to Do First If You Cannot Pay PAYE

1. Call HMRC before the next payroll date. The number is 0300 200 3819. Each payroll run without a plan adds another month of arrears on top of the current bill.
2. Keep running payroll and filing on time. Filing late as well as paying late brings separate penalties, and it tells HMRC the problem is wider than cash.
3. Work out what the company can genuinely afford. HMRC will ask how much you can pay each month on top of current PAYE. An offer the business cannot keep up is worse than a modest one it can.
4. Check your own exposure. If the arrears include National Insurance and HMRC raises neglect, take advice on director liability before you reply.

One missed month is a timing problem HMRC can schedule. Three missed months on top of current PAYE is a figure the business may not be able to clear inside a 6 to 12 month plan, which is why the date of the first call decides so much.

Can You Get a PAYE Time to Pay Arrangement?

Often, yes, but on PAYE it is a harder conversation than on Corporation Tax. Arrears tell HMRC that tax deducted from staff was used as working capital, and HMRC treats that seriously.

HMRC also needs the deal less than you do, because PAYE already ranks ahead of most creditors and the National Insurance can be pursued against a director personally.

How to apply. Call 0300 200 3819 and explain the position plainly. HMRC can already see the amounts from your payroll submissions, so the call is about what you can pay and when, not about the figure.

Before agreeing, HMRC weigh three things:

• whether the business can sustain the instalments plus its current obligations;
• whether the repayment schedule you propose is realistic;
• whether you are up to date on other taxes, because a PAYE deal while you are also behind on VAT and Corporation Tax is a much harder negotiation.

Typical terms. 6 to 12 months is common. Interest keeps running on the balance at the late payment rate, and you must pay current PAYE on time for as long as the arrangement lasts.

Timing matters more than anything. 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.

If HMRC refuses. If the business cannot carry the repayments and current liabilities together, Time to Pay is not the right tool and enforcement continues. The question then becomes whether the company is insolvent, and that needs insolvency advice.

What Happens After You Miss a PAYE Payment?

HMRC moves faster on PAYE than on most other tax debts. The sequence below is typical rather than fixed, and a petition does not have to wait for a statutory demand.

HMRC Enforcement Timeline

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. Interest and late-payment penalties are added to the balance.
Months 3 to 6	Enforcement agents (bailiffs) may be instructed, or a statutory demand sent for debts over £750. Referrals can come as early as 3 months in.
Months 6 and beyond	Winding-up petition filed and advertised in the Gazette. Banks usually freeze the company’s 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, and months of unpaid PAYE are strong evidence that you are not.

Late Payment Interest and Penalties

Late payment interest runs from the due date at Bank Rate plus 4%: 7.75% from 9 January 2026, and 8.00% from 24 November 2026.

On £20,000 of arrears at 8.00%, that is about £1,600 a year, or roughly £133 a month, before any penalty.

Penalties depend on how many times you pay late in a tax year, from 1% to 4% of the late amount. The rate climbs with each further default in the same year, so falling behind every month pushes up the percentage as well as the balance.

Statutory Demands and Winding-Up Petitions

A statutory demand is a formal written demand: if the company does not pay or settle it within 21 days, HMRC can use that to petition to wind the company up.

A creditor does not always need to serve one first, so a missing demand is not breathing space.

A winding-up petition asks the court to close the company. It is advertised in the London Gazette, the government’s official journal of public notices. It is free, anyone can search it, and your bank watches it.

So the advert, not the hearing, is usually when the company loses its bank account, weeks before a judge decides anything. Dealing with an HMRC winding-up petition covers the steps from there.

Can Unpaid PAYE Lead to Insolvency?

Yes. If HMRC’s petition succeeds, the court makes a winding-up order and the company goes into compulsory liquidation.

A company that has used PAYE to pay other bills is, for that month at least, not paying its debts as they fall due. That is close to the cash-flow test of insolvency, which asks whether the company is able to pay them.

The real question is whether that is a timing gap or a business that cannot recover. Three things make PAYE weigh more than other tax debts while you answer it.

Preferential status. PAYE income tax and employee National Insurance 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.

HMRC already knows the figure. You told HMRC what you deducted with every payroll run, and it knows to the penny what has not been paid over. That certainty is part of why HMRC can petition quickly: there is no dispute about the debt for a court to weigh.

Personal liability notices. If the company’s failure to pay National Insurance is down to a director’s fraud or neglect, HMRC can serve that director a personal liability notice. It makes you personally liable for the unpaid National Insurance it specifies, plus interest.

Ordinary unpaid PAYE income tax has no general equivalent, though HMRC can make a director jointly liable in narrower cases such as tax avoidance, evasion or repeated insolvencies.

The notice does not apply to VAT or Corporation Tax, but HMRC has other routes to make a director personally liable for those taxes in cases of evasion, avoidance, repeated insolvency or penalties for deliberate errors.

The notice depends on HMRC showing the failure was down to your fraud or neglect, not simply that the company ran out of money. That is why records of what you knew and decided, and when, matter.

Once served, it is a personal debt that survives the company’s liquidation. HMRC can enforce it through a county court judgment, bailiffs, a charging order against your property and, ultimately, bankruptcy proceedings.

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

A notice can arrive months after the company was dissolved, at your home address. Closing the company does not close this risk.

You can appeal within 30 days of receiving the notice. Grounds include: the amount is not National Insurance the notice can cover, the failure was not due to your fraud or neglect, you were not an officer at the time, or HMRC’s view of how much falls on you was unreasonable.

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.

Options If You Still Cannot Pay the PAYE Debt

If circumstances change during an arrangement, ring HMRC before you miss an instalment, not after. A missed instalment lets HMRC cancel the arrangement and restart enforcement from where it stopped.

If the PAYE arrears are part of a wider cash-flow crisis, speak to a licensed insolvency practitioner. A Time to Pay arrangement fixes a timing problem. It does not fix an insolvent business.

The 30-second insolvency test gives a first answer on which side of that line the company sits.

If it cannot recover, a creditors’ voluntary liquidation lets the directors close the company themselves, rather than waiting for HMRC’s petition to close it through the court.

The first call through Company Debt is with a licensed insolvency practitioner. A free, confidential consultation will tell you where you stand and what your options are.

Frequently Asked Questions About 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.