Helping clients behind on their tax repayments

When a client misses a tax payment, it’s rarely just an oversight. In many cases, it’s the point where underlying cash pressure starts to surface. As their accountant, you’re often the first person they turn to once HMRC letters or reminders start to come in.

The key is helping these clients understand what HMRC is likely to do next and which options still leave them in control.

How HMRC typically responds

HMRC’s approach is usually structured rather than sudden. Most cases follow a familiar escalation path:

•           Automatic penalties or interest

•           Reminder letters and online prompts

•           Phone calls chasing engagement

•           Formal demands or requests for proposals

•           Enforcement action if arrears keep growing

The pace depends on the tax type and payment history. VAT and PAYE usually escalate faster than Corporation Tax.

What matters most is engagement. Silence or missed deadlines tend to push HMRC towards stronger action.

Time to Pay (TTP): when it works best

A Time to Pay arrangement is often the first thing you might suggest to a client. And it can work in the right circumstances. It’s usually appropriate where:

•           Arrears are recent and contained

•           The business is fundamentally viable

•           Cash-flow pressure is temporary

•           Future tax liabilities can be paid on time

HMRC will expect realistic forecasts and an affordable proposal. If payments are missed, TTP can be withdrawn quickly.

A red flag is when tax is only one of several unpaid pressures. Spreading HMRC debt alone can delay, rather than resolve, a wider problem.

When does a CVA become a more realistic solution?

A Company Voluntary Arrangement could be an option where the business is viable in the long term, if its overall debt burden is reshaped. It can suit clients where:

•           The company is still trading

•           Future cash flow is predictable

•           Unsecured creditors will do better than in liquidation

•           Directors accept tighter financial discipline

HMRC assesses CVAs commercially. If the proposal is credible and future compliance looks realistic, support is common.

When should they think about liquidation?

Sometimes recovery options no longer stack up. This is often the case where:

•           Ongoing liabilities can’t be met

•           Tax arrears increase month by month

•           Multiple creditors are applying pressure

•           There’s no clear route back to solvency

At this stage, a Creditors’ Voluntary Liquidation (CVL) can be the most controlled outcome. It allows directors to:

•           Stop further losses

•           Deal with HMRC and creditors formally

•           Meet their legal duties once insolvency is clear

•           Draw a line under company debt

For many directors, liquidation feels like a failure. But in reality, early action often limits personal risk and prevents matters spiralling.

It’s all about early advice

From an advisory perspective, warning signs that suggest it’s time to escalate the conversation include:

•           Repeated missed tax deadlines

•           Reliance on future income to clear historic debts

•           Juggling creditors month to month

•           Increasing HMRC contact or enforcement pressure

Introducing insolvency advice doesn’t mean liquidation is inevitable. It simply means decisions are being made with clarity around risk, duty and control.

Key takeaways

•           Missed tax payments usually signal wider cash strain

•           TTP works best for short-term, contained issues

•           CVAs suit viable businesses with broader unsecured debt

•           CVLs provide a controlled exit where recovery isn’t realistic

•           Early engagement keeps options open and protects directors

If you have a client struggling to keep up with tax, a short conversation with a qualified insolvency practitioner can quickly clarify which routes are realistic and which are likely to fail. That clarity helps you support the client properly and manage their expectations, before HMRC takes control of the process.

If you’d like to discuss a client case, we’re here to help. Call our experts on 01908 754666 or email enquiries@ftsrecovery.co.uk