Published: 11/06/2026 By Jane Price
HMRC’s approach to unpaid tax and struggling businesses has changed noticeably in recent months. Time to pay arrangements are harder to secure, tolerance is lower, and winding up petitions are being issued more readily than many directors expect. For company directors, this shift is significant. Very often, the first indication that HMRC has lost patience is a formal letter or petition, by which point options are already narrowing. Understanding what is changing, why it matters and what action should be taken early can make a material difference.A clear shift in HMRC’s enforcement strategy
Historically, HMRC was often viewed as a supportive creditor, particularly where directors were open, communicative and making some effort to reduce arrears. That position has shifted. Across the UK insolvency market, there has been a marked increase in HMRC winding up petitions, reduced flexibility around extended time to pay arrangements, and faster escalation where liabilities continue to build. HMRC is now more focused on enforcement and recoveries, and this means directors are increasingly likely to face formal action sooner than they might have expected. In practical terms, HMRC is more inclined to act first and discuss issues later.
Early warning signs Directors should not ignore
In most cases, enforcement does not come without warning. Common indicators include persistent arrears across PAYE, VAT or Corporation Tax, rejected or shortened time to pay proposals, correspondence becoming more frequent or more formal, and penalties or interest continuing to accrue despite communication. Directors often hope that improving trading conditions will resolve these issues naturally, but while action is delayed, risk increases for both the company and the individuals behind it.
Why waiting often worsens the outcome
One of the most frequent issues we encounter is directors waiting until formal action has already been taken before seeking professional advice. By that point creditor confidence is often gone, rescue or restructuring options may no longer be available, and advice becomes reactive rather than strategic. Seeking advice earlier does not automatically mean entering into insolvency. In many cases it creates scope for controlled restructuring, informed engagement with creditors and better protection for directors. Waiting in the hope that matters will resolve themselves rarely improves outcomes and, in the current environment, carries increased risk.
Increased personal risk for company Directors
As HMRC enforcement activity increases, so too does scrutiny of director conduct. When cashflow is under pressure, directors understandably focus on keeping the business trading. However, this can expose them to personal risk if tax liabilities are allowed to escalate or if decisions are made that inadvertently disadvantage creditors. Areas of concern commonly include continued trading while arrears grow, paying certain creditors in preference to others, overdrawn directors’ loan accounts and personal guarantees given to lenders. Early advice helps directors understand their duties, manage risk and avoid positions that may later be challenged if insolvency becomes unavoidable.
Practical steps Directors should take now
Where tax arrears are becoming difficult to manage, directors should not ignore correspondence or assume that informal arrangements will continue indefinitely. Gaining a clear understanding of the company’s cash position and future prospects is essential, and independent advice should be sought sooner rather than later. Acting early does not commit directors to a particular outcome, but it does preserve options, time and control, all of which can disappear quickly once HMRC takes formal steps.
How Turpin Barker Armstrong can help
At Turpin Barker Armstrong, we regularly advise directors at all stages of financial difficulty, from early concerns through to formal insolvency procedures. Our approach is practical, confidential and focused on helping directors make informed decisions at the right time. Where HMRC pressure is increasing, an early conversation can significantly improve outcomes, both for the business and for the directors involved.
HMRC, Tax Arrears and Insolvency – Frequently Asked Questions
What happens if my company cannot pay its tax bills?If a company is unable to pay its tax liabilities as they fall due, HMRC will usually begin with reminders and demands. If arrears persist, interest and penalties continue to accrue and HMRC may escalate matters, which can include pursuing recovery action or issuing a winding up petition. The earlier advice is taken, the wider the range of options available to directors.
Can HMRC force my company into liquidation?
Yes. HMRC is one of the most frequent petitioning creditors in the UK. If it believes the company is insolvent and unpaid liabilities are not being addressed, it can apply to the court to wind the company up. Once a petition is issued, control over timing and options becomes more limited.
Will HMRC always agree to a Time to Pay arrangement?
No. Time to Pay arrangements are not automatic and are now being granted more selectively. HMRC will consider factors such as compliance history, affordability and whether liabilities are continuing to grow. Where it believes a proposal is unrealistic or delays the inevitable, it may refuse and move directly to enforcement action.
What tax debts can trigger insolvency action?
Most commonly this includes VAT, PAYE, National Insurance and Corporation Tax arrears. While a single missed payment may not lead to immediate action, sustained or increasing arrears significantly raise the risk of enforcement.
When should I take insolvency advice?
Directors should consider taking advice as soon as it becomes clear that tax liabilities cannot be paid on time or that arrears are building. Advice taken early does not mean insolvency is inevitable; it often allows for more controlled outcomes and reduces personal risk for directors.
Can directors be personally liable for company tax debts?
Company tax debts generally remain the responsibility of the company. However, directors can face personal consequences if duties are breached, such as continuing to trade while insolvent, allowing tax arrears to grow without realistic plans, making preferential payments, or where there are overdrawn directors’ loan accounts or personal guarantees. Early advice helps directors understand and manage these risks.
What is a winding up petition and what does it mean?
A winding up petition is a court application by a creditor, often HMRC, seeking to place a company into compulsory liquidation. Petitions are advertised publicly, which can affect banking facilities, suppliers and customers. Once a petition is issued, options become limited and urgent advice is essential.
Can a company still be saved after HMRC action starts?
Sometimes, yes but options reduce significantly once formal action begins. Early professional involvement improves the likelihood of alternative solutions such as restructuring or agreeing managed outcomes. Once a petition is advertised, rescue is far more difficult.
Should I stop trading if the company cannot pay HMRC?
Not necessarily, but directors must be cautious. Continuing to trade where there is no reasonable prospect of avoiding insolvency can expose directors to increased personal risk. This is often a finely balanced decision and should be taken with professional advice.
What if the company is solvent but under pressure?
Many businesses that are technically solvent still face growing tax and creditor pressure due to cash flow constraints or economic uncertainty. In these cases, early advice can help directors assess whether restructuring, refinancing or an orderly exit may be appropriate.
How can Turpin Barker Armstrong help?
We advise directors at all stages of financial difficulty, from early tax concerns through to formal insolvency procedures. Our approach is practical, confidential and focused on helping directors understand their position, protect themselves and make informed decisions at the right time.