If your business is suffering from PAYE arrears and can’t pay them, HMRC using really on the level of faith that they hold in your company in regards to its tax history and regulatory compliance
Should this be the first time that you’re having trouble paying PAYE, you will receive a different reaction from HMRC compared to a company that has missed payments repeatedly.
Our guide will explain how as a director you can deal with HMRC in regards to PAYE arrears, as well as the potential penalties, consequences you may receive for failure to pay.
What happens if you cannot pay PAYE?
If your business does not have the money so it can settle its PAYE arrears, your first concern is going to what happens next?
The first thing to happen will be that you receive an automated letter reminding you to pay your PAYE debt. The letter will explain that payment is required immediately and gives you an outline of the ways you can make payment.
Should the PAYE arrears continue, this will flag up on HMRC debt management systems, it will then be escalated to the next level. The next level is to insure late payment charges and interest. The amounts charged can be found below, this is dependent on how often you have defaulted.
Next, HMRC will instruct a field officer to attend your premises in order for you to make a payment plan. If you fail to pay still your penalty liability will slowly grow tougher. All the time you will be receiving increasingly threatening letters followed by legal action.
The final step will be for HMRC to force your company into liquidation for non-payment for debt, they will use a process known as a Winding-up Petition. HM and Revenue are the largest issuer of these per year than any other creditor.
Ignoring the letters, phone calls and field officer is the worst thing you can do. Having cash flow issues, or just even missing one late PAYE payment can be a symptom of more serious financial issues within your company, you need to keep in touch with them.
What is the Penalty for Late Payment of PAYE?
The penalty for late payment of PAYE , starts from what they call ‘the penalty date’ which is generally the day after the due date.
A percentage of the total amount that is late is the penalty, these then increase exponentially depending on the number of defaults in a tax year.
What are the options for paying PAYE arrears?
We have assisted small companies that cannot pay PAYE and have HMRC arrears issues over the years, and have a clear understanding of how HMRC work.
We can provide an expert negotiator to act on your behalf with HM and Revenue, as well as offer and advise you of the full range of options available for someone in your situation.
The following options are available.
Time to Pay Arrangement (TTP) for PAYE
The Time to Pay Arrangement (TTP) for PAYE is a way for businesses to catch up on their PAYE payments. TTP allows businesses to make smaller payments over time, rather than one large payment. This can help businesses that are struggling to make ends meet, as it gives them more time to pay off their debts.
In order to be eligible for TTP, businesses must have filed their PAYE return on time and have a realistic plan for repaying the debt. If you think TTP could be right for your business.
HMRC will look at you making repayments of your PAYE arrears over a maximum of 12 months, they will also require that you have compliance measures in place for forthcoming tax deadlines as well as making sure those payments are met.
Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows companies to repay their debts over an extended period of time. This can be an attractive alternative to liquidation for companies that are struggling with PAYE, VAT or Corporation Tax debt, but which are otherwise viable businesses.
In order to qualify for a CVA, the company must first negotiate an arrangement with its creditors. Once the arrangement is approved by the creditors, it is binding on all of the company’s creditors, even those who voted against it. The terms of the arrangement will typically include a reduction in the amount of debt owed, as well as an interest rate reduction and/or payment holidays.
CVAs are usually overseen by an insolvency practitioner, who will work with the company to ensure that it meets its obligations under the arrangement. While a CVA can provide much-needed breathing space for a struggling company, it is important to remember that it is not a “get out of jail free” card. The company will still be liable for its debts, and if it fails to meet its obligations under the CVA, it may be forced into liquidation.
Personally liability for PAYE arrears debts?
A Personal Liability Notice is issued against a director if the government suspects that you have deliberately, or intentionally failed to pay your statutory tax duties.
As per Section 121C, Social Security Administration Act 1992, PLN’s give HMRC the power to hold company directors personally accountable in situations where there appears to be fraud or serious neglect.
In conclusion, if a company is unable to pay its PAYE (Pay As You Earn) bill, it is important for the business to take steps to address the issue as soon as possible. Failure to pay PAYE can have serious consequences, including fines, interest charges, and legal action by the government. If you find yourself in this situation, it is important to communicate openly with HMRC (Her Majesty’s Revenue and Customs) and seek professional insolvency advice.
There may be options available to help you manage your debts, such as negotiating a payment plan or applying for hardship relief. It is also important to address any underlying issues that may have contributed to the inability to pay the PAYE bill, such as financial mismanagement or cash flow problems, in order to prevent similar issues from occurring in the future.
You can also complete the online enquiry form and someone will call you in return.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.