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HMRC has significantly increased enforcement activity against companies with unpaid tax liabilities. As pandemic-era support measures have receded, the tax authority has taken a more proactive approach to recovering outstanding debts.
We are seeing a growing number of companies facing escalating pressure from HMRC where liabilities such as VAT, PAYE, and Corporation Tax have accumulated.
For many businesses, tax arrears initially arise as a short-term response to cashflow pressure. Directors may prioritise wages or suppliers while planning to address HMRC liabilities later. However, these balances can quickly grow to a level where they become difficult to manage.
In the early stages, HMRC may engage with companies to discuss payment options. Time to Pay arrangements can provide a structured repayment plan, allowing businesses to clear tax arrears over an agreed period.
However, HMRC has become increasingly selective in granting these arrangements. Factors that may influence HMRC’s willingness to agree terms include:
- The size of the outstanding liability
- The company’s compliance history
- Whether previous arrangements have been breached
- The credibility of the proposed repayment plan
Where tax arrears continue to grow or communication breaks down, HMRC may escalate enforcement activity. This can include:
- Debt collection procedures
- Statutory demands
- Winding-up petitions
For directors, a winding-up petition represents a particularly serious development, as it can lead to the compulsory liquidation of the company if the debt remains unpaid.
Importantly, the presence of significant tax arrears does not necessarily mean that a business cannot be rescued. Many companies facing HMRC pressure still have fundamentally viable operations.
Where advice is taken early, options may include:
- Negotiating revised payment arrangements with HMRC
- Restructuring the company’s debt position
- Implementing a formal restructuring procedure where appropriate
- Exploring a sale or investment into the business
Timing is critical. Once enforcement action has progressed to the petition stage, the available options may become more limited and timeframes much shorter.
Accountants and legal advisers frequently become aware of tax arrears before they escalate into formal enforcement action. Early engagement can help directors understand the potential risks and consider the most appropriate course of action before the situation becomes critical.
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Last Updated on 20 April 2026
