Advice for directors of companies with PAYE arrears

Updated: 26th April 2021

Given the sheer magnitude of HMRC as a creditor, having PAYE arrears is a worrying situation that can lead to significant penalties being applied. HMRC are known to relentlessly chase their debts, and also hold additional powers when compared with other creditors.

To give you an insight into the possible ramifications of failing to pay your company’s PAYE liability and provide a starting point for taking action, here are just a few of the HMRC-specific issues you need to consider.

Additional authority

Unlike the majority of other creditors, HMRC do not have to obtain a Statutory Demand or a County Court Judgment (CCJ) to prove that a debt exists. They take advantage of this situation by moving directly and quickly to debt recovery through a range of enforcement measures.

Disputing a debt

Disputing a debt with HMRC can be difficult. We recommend you seek assistance from a professional insolvency expert with practical experience of their methods and practices if you believe an error has been made within a tax demand.

Relentless pursuit of debt

HMRC will always pursue tax arrears, even if it takes years before they send out a warning letter. They are also quick to issue winding up petitions against companies they believe to be insolvent or deliberately avoiding their liabilities.

It is this last point that can cause serious issues for companies with PAYE arrears. If you are concerned that your company may have entered insolvency it is imperative to cease trading straight away, otherwise you may also face allegations of wrongful trading.

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How to deal with PAYE arrears

Initially you need to establish whether the company is insolvent. Depending on the extent of the debt and the makeup of your business, the following measures may be appropriate in dealing with the situation.

Additional funding

Additional funding could pay off your arrears and potentially provide a regular source of working capital each month, or a lump sum with which to steer your company out of financial difficulty.

Time to Pay (TTP) arrangement

If your company is solvent and you can support a case for extra time to pay, HMRC may be willing to offer their instalment plan to repay your PAYE debt over time. This plan is called a Time to Pay (TTP) arrangement and typically offers up to 12 months extra time.

Restructuring debt

If you owe more than one debt, a formal insolvency procedure such as company administration or a Company Voluntary Arrangement (CVA) could be appropriate, and would help you reorganise the company’s affairs.

Voluntary Liquidation

In some cases Creditors’ Voluntary Liquidation (CVL) can be the best way forward for directors dealing with unmanageable debt. This formal insolvency procedure places the interests of creditors first, and also offers you the possibility of claiming redundancy as a director.

For more information on dealing with PAYE arrears, whether negotiating for extra time to pay or securing the additional finance that prevents further decline, please contact one of our experts to arrange a free same-day consultation. We have contacts with alternative finance providers throughout the country.

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