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.

We do not soften this because the reality does not soften it. PAYE arrears are the most common trigger for HMRC enforcement action against UK companies.

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

We see directors who treated PAYE as a flexible cash-flow buffer discover that it is the fastest route to a winding-up petition.

Quick Answer: What to Do When You Cannot Pay PAYE

Call HMRC’s Business Payment Support Service on 0300 200 3835 immediately. Request a Time to Pay arrangement.

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 TTP is better than no TTP.

We tell directors: PAYE is the one tax debt you cannot afford to ignore. It creates personal liability, it has preferential status in insolvency, and HMRC pursues it faster than any other tax type. Every week of delay adds to the debt and to your personal exposure.

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 are 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. This means HMRC recovers more from PAYE in insolvency than from Corporation Tax, which makes them less inclined to negotiate and more willing to petition.

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. We see directors who hope HMRC does not know the exact figure. They do. RTI made that hope obsolete.

HMRC Enforcement Timeline for Unpaid PAYE

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

Month	What HMRC does
1	Payment missed. HMRC’s system flags the non-payment automatically. A generic reminder may be generated.
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.
3 to 6	HMRC may instruct enforcement agents (bailiffs) under Taking Control of Goods powers, or serve a statutory demand for debts over £750. We see PAYE enforcement referrals as early as 3 months in.
6 and beyond	Winding-up petition filed and advertised in the London Gazette. Your bank freezes the accounts. The court 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.

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.

We have worked with directors who received PLNs for £20,000 to £50,000 months after the company was dissolved. 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. We advise taking specialist tax advice immediately if you receive a PLN. The 30-day appeal window is strict.

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.

We find HMRC is less willing to agree TTP for PAYE than for Corporation Tax, precisely because of the personal liability and preferential status dynamics. The earlier you call, the better the odds. A director who calls before the first payment is missed has significantly more credibility than one who calls six months later.

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.

Company Debt connects directors with licensed insolvency practitioners who 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