A growing number of UK employers are feeling the strain in the present trading conditions and the number of insolvencies continues to rise. If you run a company, are you worried about being unable to pay the tax due on your PAYE bill?

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Government support is reducing for the employer, in particular since furlough pay has ended, and this is ramping up the pressure on businesses.  Perhaps you have a challenging employee situation if more have returned from furlough? Perhaps you took out a government support loan and now the repayments are due? If you can’t pay the PAYE bill – [1]GOV.UK “Difficulties Paying HMRC –  then you should act quickly. If you are finding the situation difficult to manage, then don’t put off taking specialist advice. 

The employer has a duty to collect PAYE deductions – [2]GOV.UK “PAYE for employers –  from income tax and National Insurance contributions and send these to HMRC on a monthly basis. If you fail to do this, then HMRC will take swift action against you. 

What Should I do if I Can’t pay PAYE?

In the event of missing a PAYE payment, or if you know you are going to miss the next one, then you should contact HMRC promptly via its dedicated Covid-19 helpline – 

[3]GOV.UK  “HMRC Covid-19 Helpline. But before doing so, ensure you are as well prepared as possible. 

Before speaking to HMRC about a late payment, you need to be clear on your financial situation. This also means being ready to make some tough decisions if necessary – do you need to make redundancies among previous furloughed employees or other business savings, for example? These can all be exceptionally hard choices for an employer, but they must be made. You may be able to reemploy at a later date or offer work to some as self-employed individuals. 

Remember that HMRC will be less likely to listen favourably if you have a poor track record with PAYE or have been late with other tax payments such as Corporation Tax and VAT filing, so all business records, including self-assessment, need to be up to date. Ensure you also have all the relevant documents to hand and this should include:

·         any correspondence you have received from HMRC

·         a clear plan on how you plan to pay the debt

·         achievable cash flow forecasts, at least for the next few months

 Could HMRC’s Time to Pay Help?

HMRC’s Time to Pay arrangement allows firms a longer period to make their overdue tax payments and typically, it will grant between two and six months. However, because of the pandemic, many more businesses are experiencing problems and so, HMRC may take a more flexible approach and allow up to 12 months, if it believes the affected company has a credible plan to pay.

You may be asked to make a partial payment to HMRC there and then and it may help your case if you are able to do this – there will be a  charge if you need to make this on a credit card.

If you believe Time to Pay could be helpful but need assistance with negotiating with HMRC or have questions about the process, then contact a licensed insolvency practitioner with experience in this area and they will be able to provide you with support and guidance.

It is crucial that any PAYE arrangement agreed with HMRC must be followed to the letter – there is no scope for a ‘stop’ and ‘start’ approach with payment. If not, then there is a very real risk that your firm could face severe sanctions and at worst, this could include being wound up and directors being personally liable. 

What Penalties Will I Face if I Can’t Pay PAYE?

HMRC will charge you penalties from what they term ‘the penalty date’, which is generally the day after the due date. For the first incidence of non-payment in a tax year, you will not be charged a penalty, however, these will be levied for future cases at the following percentage amounts and these will increase if further defaults occur:

·         1 – 3 defaults – 1% of amount due

·         4 – 6 defaults – 2% of amount due

·         7 – 9 defaults – 3% of amount due

·         10 or more defaults – 4% of the amount due 

If you make partial PAYE payments, a default charge will still be imposed and additional 5% fines are levied at the six and 12-month marks if the account is not brought up to date. 

What is a Personal Liability Notice from HMRC?

Because the employer deducts the sums directly from their employees’ pay, HMRC will demand these are provided without delay. If this fails to happen, expect an investigation and a Personal Liability Notice – [4]GOV.UK “Personal Liability Notice – may also be issued. This is a legal notice that HMRC can make to an individual – it transfers a company’s liability for unpaid National Insurance Contributions to the company director. 

The measure was introduced by HMRC in 2009 and tends to be used to tackle ‘phoenixism’, which is where assets of a company in financial difficulty are sold to existing directors who then set up a new firm. The former business is closed and the directors attempt to avoid paying off debts associated with this. 

HMRC will also use a Personal Liability Notice in other cases where they believe a director has deliberately sought to avoid paying national insurance. HMRC has the authority to do this under Section 121C, Social Security Administration Act 1992 and it means company directors can be held personally accountable in situations where there is fraud or serious failures in how the business was run. 

Time to Seek Help When you Can’t Pay HMRC?

The expert insolvency practitioners at Company Debt can provide you with personalised advice both with Time to Pay arrangements and if you subsequently find that you cannot stick to this.

This is a serious situation and it may be that you have to look at liquidation as a solution. Alternatively, it may be possible to avoid this if you have a healthy book of forward bookings and are simply waiting for the payment to come in. For such instances, you may be able to keep your Time to Pay arrangement on track through the use of invoice finance or factoring, which can result in much-improved cash flow position. 

Another possibility if you believe the company can be rescued is a Company Voluntary Arrangement. This is a legally binding solution where creditors – which will include HMRC – agree to accept payments over an extended period of up to five years.

There is no guarantee that HMRC will accept a Company Voluntary Arrangement. But, if a strong proposal is put forward by professionals, and you also have to date ensured all your other dealings with HMRC have been compliant such no previously underpaid tax, then it may. Much will also depend on your forward trading situation and if current troubles can be overcome.

Meanwhile, administration or pre-pack administration could also be on the table as ways forward if it is believed that the assets can be sold on to a new buyer or if the existing directors could purchase these under a new company structure.

Under these formal arrangements, you can gain protection from being pursued by HMRC – but only if you act in sufficient time. If not, HMRC may issue a winding-up petition, and options to rescue the business will then largely be taken out of your hands. If you can’t pay PAYE or other taxes, then contact Company Debt for a confidential discussion to look at your options before it is too late.


All Company Debt insolvency content is written by our licensed insolvency practitioners.

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 the standards we follow in producing accurate, unbiased content in our editorial policy here.

  1. GOV.UK “Difficulties Paying HMRC
  2. GOV.UK “PAYE for employers
  3. GOV.UK  “HMRC Covid-19 Helpline
  4. GOV.UK “Personal Liability Notice