HMRC arrears: funding options to clear a tax bill

Before borrowing anything, look at a Time to Pay arrangement. HMRC routinely agrees instalment plans for viable companies with a temporary problem, typically over 6 to 12 months, and it costs nothing to arrange beyond interest on the deferred tax. If the arrears are affordable over that horizon, TTP is usually the better answer than borrowing, because it adds no new creditor and no security. Funding earns its place where TTP has been refused or has failed, where the arrears are too large for HMRC's appetite, or where enforcement is already moving.

The honest case looks like this: the company trades profitably, something temporary caused the arrears, a large VAT quarter, a lost customer since replaced, a one-off bad debt, and paying the bill restores normality. VAT and tax-bill funding spreads that payment over months. Invoice finance can do the same job by releasing cash sitting in unpaid invoices, and for some companies that is the more natural fit because it scales with trading. In both cases the funding clears a specific, quantified liability and stops enforcement, including the path that leads to a winding-up petition.

If the company is losing money month after month, borrowing to pay HMRC does not fix anything: the next quarter's bill arrives with the loan repayments on top. Worse, once you knew, or should have known, that the company had no reasonable prospect of avoiding insolvent liquidation, running up new debt can make you personally liable for wrongful trading. The test to apply honestly: does the borrowing solve the problem, or delay it? If the answer is delay, the right conversation is with a Licensed Insolvency Practitioner about the company's options, covered on our HMRC debt page.

HMRC is the UK's most active petitioner of companies, and its enforcement runs on a conveyor: reminders, debt collectors, enforcement notices, a statutory demand, then a winding-up petition. The earlier in that sequence you act, the more options exist; once a petition is issued, bank accounts are typically frozen and both TTP and funding become much harder to arrange. If a petition or statutory demand has already arrived, treat it as this week's problem, not this quarter's, and get advice immediately.

LTD Turnaround is an information and introduction service. We do not provide legal, insolvency or financial advice. Insolvency matters are referred to a Licensed Insolvency Practitioner. Finance is referred separately, and only after insolvency advice, to an FCA-authorised broker. We may receive a referral fee; this does not affect what you pay or the service you receive.

Reusing a company name, buying assets from a company you were a director of, or taking on new borrowing while the company is insolvent can carry criminal and personal liability risk. Before acting, take advice from a Licensed Insolvency Practitioner and, where a company name or disqualification question is involved, a solicitor.