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My Business Has Fallen Behind With PAYE

As a business owner, PAYE arrears can be a daunting challenge, especially when my business has fallen behind with payments.

But what if we told you there’s hope in overcoming this issue and regaining financial stability?

In this blog post, we will guide you through understanding PAYE arrears, the consequences of late or missed payments, and solutions to get back on track.

We will also share best practices for preventing future arrears, allowing you to focus on growing your business with confidence.

Short Summary

  • Understand the causes and consequences of PAYE arrears, including potential financial penalties.
  • Take immediate action such as contacting HMRC and seeking professional advice to mitigate the consequences.
  • Implement best practices such as accurate payroll records, payment reminders & regular reviews to prevent future PAYE arrears.

Understanding PAYE Arrears: Causes and Consequences

PAYE, or Pay As You Earn, is a system used by employers to deduct income tax and National Insurance Contributions (NICs) from their employees’ remuneration.

However, when businesses struggle to pay their taxes on time, they may find themselves in tax arrears. Common causes of tax arrears and non-payment problems include cash flow problems and other financial difficulties.

The consequences of late or missed payments can be severe for a limited company, ranging from financial penalties to winding up petitions and personal liability for company directors.

In this section, we will delve deeper into the reasons for PAYE arrears and the implications of a late payment or missed payments, as well as the financial penalties involved.

Reasons for PAYE arrears

Cash flow problems are one of the main reasons businesses fall behind on their PAYE payments.

They may struggle to meet their obligations on a monthly basis, leading to tax arrears and increased scrutiny from HMRC.

Additionally, failing to submit Full Payment Submissions (FPS) through the Real Time Information (RTI) system each time an employee is paid can also cause tax arrears, as this is required to ensure timely tax payments to HMRC.

By understanding the factors that contribute to PAYE arrears, businesses can take proactive steps to address these issues and avoid falling behind on their tax obligations.

Implications of late or missed payments

The implications of late or missed payments can be far-reaching and severe. Businesses may face insolvency, increased scrutiny from HMRC, and in some cases, personal liability for company directors.

Moreover, financial penalties can be incurred, with interest accruing daily on the outstanding amount.

In the event of arrears persisting after six and 12 months, a penalty of 5% tax month is applied next tax month. Being aware of these implications can help businesses take action to avoid late or missed tax payments and the subsequent consequences.

Financial penalties

The financial penalties for PAYE arrears can be significant and detrimental to a limited company or a business limited company’s financial health.

Penalties are calculated as a percentage of the outstanding amount, and the rate increases with each subsequent late payment within a tax year.

For example, if an employer pays late or sends less than the full amount of income tax and NIC to HMRC, they may face a further warning letter or financial penalty.

Furthermore, submitting partial payment of an FPS after the due date can result in a fine of 5% of the National Insurance Contribution amount due.

By understanding the financial penalties associated with PAYE arrears, businesses can make informed decisions and take action to avoid these costs.

Immediate Actions to Take When Facing PAYE Arrears

If your business is facing PAYE arrears, taking immediate action can help mitigate the consequences and put your company on the path to recovery.

Key actions include contacting HMRC to discuss their Time to Pay scheme and seeking professional advice.

By proactively addressing the issue, businesses can work towards resolving their PAYE arrears and improving their financial situation.

In the following subsections, we will discuss the importance of contacting HMRC, seeking professional advice, and assessing your own company director’s financial situation.

Contacting HMRC

When facing PAYE arrears, it’s crucial to contact HMRC as soon as possible to explore payment solutions.

Open communication with HMRC can help businesses understand their options and avoid further penalties.

You can call their general enquiries helpline at 0300 200 3300 or the Payment Support Service at 0300 200 3835.

When contacting HMRC, it’s advisable to explore payment options and any other assistance that may be available.

By promptly addressing the issue, businesses can work towards resolving their arrears and minimizing the financial impact.

Seeking professional advice

Seeking professional advice is highly recommended when dealing with PAYE arrears. A knowledgeable financial professional can help businesses understand the consequences of delayed or omitted payments, the financial penalties that may be incurred, and the recommended course of action.

Expert guidance can also assist in determining the most appropriate route for your business, such as a restructuring program or entering HMRC’s Time to Pay scheme, to avert considerable penalties.

Engaging a financial professional is a crucial step in successfully managing PAYE arrears and safeguarding your business’s financial health.

Assessing the company’s financial situation

Assessing your company’s financial situation is vital when facing PAYE arrears. A thorough evaluation of your business’s financial position, including cash flow, debt, revenue, expenses, assets, and liabilities, can help identify areas of concern and potential solutions.

Reviewing financial statements, such as the balance sheet, income statement, and statement of cash flows, as well as calculating financial ratios, can provide valuable insights into your company’s financial health.

By understanding your business’s financial situation, you can make informed decisions and take appropriate actions to address PAYE arrears.

Time to Pay Arrangement: A Solution for PAYE Arrears

A Time to Pay arrangement is a viable solution for businesses struggling with PAYE arrears, allowing them to negotiate payment plans with HMRC and improve cash flow.

This arrangement can alleviate financial pressure and enable businesses to gradually pay off their tax debts while continuing to operate.

In this section, we will discuss what a Time to Pay arrangement is, its benefits, and how to apply for one.

What is a Time to Pay arrangement?

A Time to Pay arrangement is a debt repayment payment plan used for paying back outstanding taxes, such as VAT and PAYE.

It provides businesses with the option to pay back their tax debts in monthly instalments over a period of 6-12 months, although in certain cases, a longer duration may be agreed upon.

By entering into a Time Pay arrangement, businesses can alleviate financial strain and focus on their core operations while ensuring their tax obligations are met.

Benefits of a Time to Pay arrangement

There are several benefits to entering into a Time to Pay arrangement with HMRC.

Firstly, it allows businesses to repay all overdue amounts, including penalties and interest, over an extended period. This can improve cash flow and enable businesses to concentrate on their core operations.

Secondly, a Time to Pay arrangement can protect the company from legal action initiated by creditors, provided the terms of the arrangement are adhered to.

By understanding the benefits of a Time Pay arrangement, businesses can make informed decisions about whether this solution is the right fit for their individual circumstances too.

How to apply for a Time to Pay arrangement

To apply for a Time to Pay arrangement, businesses must contact HMRC and provide information regarding their business falls their payment plan and their financial situation.

This includes details about the limited company, income, expenses, assets, liabilities, corporation tax due, as well as an explanation of why the business is unable to pay its tax debts in a timely manner.

HMRC will do an initial consultation, then review the application and determine if the arrangement is approved.

By proactively engaging with HMRC and exploring a Time to Pay arrangement, businesses can work towards resolving their PAYE arrears and securing a brighter financial future.

Other Options for Dealing with PAYE Debts

Aside from Time to Pay arrangements, there are other options available for businesses to address their PAYE debts.

These include Company Voluntary Arrangements (CVA), invoice financing, and asset finance.

Each option offers unique advantages and may be more suitable for certain businesses based on their specific circumstances.

In the following subsections, we will discuss these alternative options and how they can help businesses manage their PAYE debts.

Company Voluntary Arrangement (CVA)

A Company Voluntary Arrangement (CVA) is a legally binding agreement between a company and its creditors that allows a portion of its debts to be paid back over an extended period, typically spanning three to five years.

A CVA can facilitate debt restructuring, allowing businesses to repay creditors over an established period while protecting the company from legal actions taken by creditors, provided the terms of the arrangement are adhered to.

By entering into a CVA, businesses can alleviate financial pressure and focus on their core operations while fulfilling their legal obligations to creditors.

Invoice financing

Invoice financing is a type of loan that enables businesses to obtain funds based on their unpaid invoices.

This form of financing can help businesses improve their cash flow, pay employees and suppliers promptly, and reinvest in operations and growth sooner than if they had to wait until their customers paid their balances in full.

Invoice financing can be a valuable tool for businesses facing PAYE arrears, allowing them to access much-needed funds to address their tax debts while maintaining operational stability.

Asset finance

Asset finance is a type of loan that enables businesses to acquire funds against assets such as property, vehicles, or equipment.

By leveraging the value of their existing assets, businesses can access capital to address their PAYE arrears and improve their financial situation.

However, it’s important to note that if a company is unable to maintain the monthly payments as specified, it could lose the assets used as collateral for the loan.

Therefore, businesses must carefully consider the risks and benefits of asset finance before pursuing this option to address their PAYE debts.

The Role of Insolvency Practitioners in Managing PAYE Arrears

Insolvency practitioners play a crucial role in helping businesses manage their PAYE arrears.

They can offer expert advice and guidance, negotiate with HMRC on the business’s behalf, and help identify the most suitable solution for resolving the arrears.

In this section, we will explore why it’s essential to work with an insolvency practitioner, the services they offer, and how to find the right one for your business.

Why work with an insolvency practitioner?

Working with an insolvency practitioner can be invaluable when dealing with PAYE arrears. These qualified professionals are licensed and authorised to provide advice and undertake appointments in formal insolvency procedures for businesses in financial difficulty.

They can offer impartial advice on both financial problems and tax problems, and assist in addressing financial issues, liaising with other creditors,, and advising on the most suitable course of legal action.

By engaging an insolvency practitioner, businesses can safeguard their interests and work towards a successful resolution of their PAYE arrears.

Services offered by insolvency practitioners

Insolvency practitioners offer a range of services that can be beneficial in paying and managing PAYE arrears.

They can negotiate with HMRC on the business’s behalf, exploring options such as restructuring or entering into a Time to Pay arrangement.

They can also assist with the preparation of necessary documents and the submission of applications for these arrangements.

By working with an insolvency practitioner, businesses can access the expertise and support necessary to navigate the complexities of PAYE, pay their arrears and secure their financial future.

Finding the right insolvency practitioner for your business

When selecting an insolvency practitioner for your business, it’s important to choose one who is both experienced and qualified to handle your specific circumstances.

Consider those who are members of recognized professional bodies such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Insolvency Practitioners Association (IPA).

Research and compare different practitioners and their services, as well as request references from prior clients.

By finding the right insolvency practitioner, you can ensure your business receives the guidance and support it needs to overcome PAYE arrears and achieve financial stability.

Preventing Future PAYE Arrears: Best Practices for Businesses

Preventing future PAYE tax arrears is essential for the long-term success of your business. By implementing best practices such as maintaining accurate payroll records, setting up payment reminders, and regularly reviewing company finances, you can avoid falling behind on your tax obligations and maintain a healthy financial position.

In this section, we will explore these best practices in greater detail to help you safeguard your business from future PAYE arrears.

Maintaining accurate payroll records

Keeping accurate payroll records is crucial for ensuring that employees receive their wages accurately and punctually, as well as ensuring that taxes and deductions are withheld and paid correctly and in a timely manner.

To ensure accurate payroll records, businesses should use automated payroll systems, verify data and check for errors, conduct regular audits, and track important deadlines.

By maintaining accurate payroll records, businesses can mitigate the risk of PAYE arrears and ensure compliance with tax regulations.

Setting up payment reminders

Setting up payment reminders can help ensure timely payments and prevent future PAYE arrears.

Businesses can implement payment reminders for themselves or their employees using various methods, such as email, text messages, or other automated notifications.

Personalizing payment reminders and maintaining a courteous and professional tone can also help maintain positive relationships with customers and improve the likelihood of timely payments.

By implementing effective back payment plan reminders, businesses can stay on top of their tax obligations and avoid future PAYE tax arrears too.

Regularly reviewing company finances

Regularly reviewing company finances is an essential practice for preventing future PAYE arrears.

Businesses should periodically evaluate financial statements such as the income statement, balance sheet, and cash flow statement to gain an understanding of their financial condition.

Analysing these statements, along with calculating financial ratios, can provide valuable insights into the company’s financial performance, including its profitability, liquidity, and solvency.

By staying informed about their financial situation, businesses can proactively address potential issues and avoid future PAYE arrears.


In conclusion, dealing with PAYE arrears can be a challenging and stressful experience for businesses.

However, by understanding the causes and consequences of arrears, taking immediate action, and exploring solutions such as Time to Pay arrangements and other options, businesses can regain control of their financial situation and improve their cash flow.

Furthermore, implementing best practices for maintaining accurate payroll records, setting up payment reminders, and regularly reviewing company finances can help prevent future PAYE arrears and ensure a prosperous financial future for your business.

Frequently Asked Questions

What happens if I can’t pay my PAYE?

Failure to pay your PAYE on time can have serious consequences for you and your business.

Not only may you incur fines or penalties, but you could even face court proceedings that would make it difficult to continue running your business.

It’s important to act quickly and take immediate cost-effective action to prevent any further difficulties.

Can HMRC close a business down?

In the most extreme cases, HMRC has the power to petition a company director and the court for the compulsory liquidation of a company director for business corporation tax due.

This voluntary liquidation will be done through an Official Receiver who is appointed to handle the liquidation and closure process.

Can HMRC debt be written off?

Generally, HMRC tax arrears is not easy to get written off. However, individuals may be able to request a ‘write-off’ tax bill if they have put back a loan, met specific conditions to back a loan and demonstrate hardship or other exceptional circumstances.

HMRC will generally not write off tax credit debts, but may, in certain circumstances, consider remission.

This decision can depend on several factors including individual financial circumstances and the nature of the debt.

How do I claim back PAYE overpayments?

To claim back PAYE overpayments, you can write to HMRC and mark the top of your letter clearly with repayment claim’ for it to be prioritised.

You should include a form P50 in your application to get a full back loan repayment from HMRC.

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