Facing PAYE Arrears? Your Guide to Resolving Outstanding Tax Debt

Addressing PAYE arrears is a matter of utmost importance.

Your company’s tax history plays a crucial role in shaping HMRC’s perception when you discuss PAYE payment difficulties. HMRC will approach a company experiencing PAYE arrears for the first time differently than one with a history of missed payments.

This article delves into navigating PAYE arrears, including potential penalties, consequences, and the solutions we offer.

a guide to paye arrears

What happens if you can’t pay PAYE?

If you’re unable to pay your PAYE, don’t panic. There are steps you can take to resolve the issue and avoid serious consequences.

Initial Steps

  1. Receive Reminder Letter: Upon receiving an automated reminder letter from HMRC, it’s crucial to take immediate action. The letter will outline the payment options available to you.

  2. Continued Arrears: If PAYE arrears persist, HMRC will escalate the situation. They’ll start by charging late payment penalties, which increase based on the frequency of defaults.

  3. Inability to Pay: If you’re genuinely unable to make any payments, expect increasingly stern letters followed by legal action.

  4. Winding-up Petition: As a last resort, HMRC can force your company into liquidation for non-payment through a Winding-up Petition. They issue more of these than any other creditor.

Key Takeaway:

Don’t ignore the situation. Whether you’re facing cash flow issues or more significant financial problems, maintain open communication with HMRC.

What is the Penalty for Late Payment of PAYE?

Delinquencies in PAYE payments incur penalties from HMRC, calculated as a percentage of the unpaid sum, effective the day following the due date, termed the “penalty date.” The severity of these penalties intensifies with each instance of late payment within a tax year.


Struggling to pay your PAYE arrears?

Our team of experienced tax advisors specializes in assisting small businesses navigate HMRC arrears issues.

Beyond our expertise in negotiating with HM Revenue and Customs, we provide comprehensive guidance on the available options tailored to your specific situation. For PAYE arrears, these options may include:

Payment plan for PAYE taxes

HMRC may grant a Time to Pay Arrangement (TTP), a flexible payment plan for PAYE arrears. To qualify, you must prove the company’s ability to repay the PAYE within 12 months and demonstrate effective tax payment management practices for future deadlines.

Company Voluntary Arrangement: A Lifeline for Financially Troubled Businesses

For many companies struggling to keep up with PAYE, corporation tax, or VAT payments, these tax issues often point to a more profound underlying problem. If faced with mounting pressure from creditors, a Company Voluntary Arrangement (CVA) emerges as a more viable solution than a Time to Pay Arrangement. With a CVA, businesses can defer tax and creditor payments for up to five years, and even secure a discount on the outstanding debt.

While a CVA falls under the umbrella of insolvency procedures, it doesn’t necessarily mean the company’s demise; rather, it serves as a rescue mechanism to help businesses regain their footing. In the right hands, a CVA can be a powerful tool for company revival.

Personal Liability for PAYE Arrears: When Directors Face the Consequences

When company directors fail to fulfill their statutory tax obligations, they may face personal accountability for unpaid PAYE arrears. This can occur if the government suspects deliberate or intentional neglect in fulfilling tax duties. In such instances, HMRC, the UK’s tax authority, has the power to issue Personal Liability Notices (PLNs).

PLNs, authorized under Section 121C of the Social Security Administration Act 1992, empower HMRC to hold company directors personally responsible for unpaid PAYE arrears in cases of apparent fraud or serious neglect. This measure serves as a deterrent against willful non-compliance and ensures that directors are held accountable for their actions.

The issuance of a PLN can have significant repercussions for directors, potentially leading to financial penalties, reputational damage, and even disqualification from holding directorships. Therefore, it is crucial for directors to exercise due diligence in managing their company’s tax affairs and promptly address any potential tax liabilities.