What to Do When Your Company Cannot Pay HMRC: A 2026 Guide for Scottish Directors

Few letters worry a company director more than one from HMRC. A missed VAT return, a growing PAYE balance or a payment plan that has fallen behind can quickly turn into penalties, enforcement action and, in the worst cases, a winding up petition. Many directors put off dealing with it because they do not know what their options are, and that delay is often what turns a manageable problem into a serious one.

This guide explains what happens when a limited company cannot pay HMRC, what options are open to directors in Scotland, and when to get professional help.

Step 1: Understand What You Owe and Why

Before talking to anyone, get a clear picture of the debt. List each tax separately, such as VAT, PAYE and National Insurance, and Corporation Tax, with the amounts, the periods they relate to and any penalties or interest already added. Then look honestly at cash flow. Is this a temporary shortfall caused by a late-paying customer or a seasonal dip, or a sign that the business is no longer viable?

The answer shapes everything that follows. A temporary problem can often be solved by negotiation. A deeper one may need a formal insolvency procedure.

Step 2: Talk to HMRC Early

HMRC is generally more willing to help businesses that come forward before enforcement begins. The most common route is a Time to Pay arrangement, which spreads a tax debt over an agreed period in instalments.

To give a Time to Pay request the best chance of success:

Interest continues to build while a Time to Pay arrangement runs, so it reduces pressure rather than cost.

Step 3: Know What Happens If a Payment Plan Fails

If a Time to Pay arrangement is missed or new liabilities build up alongside it, HMRC may cancel the plan and demand the full balance. Further penalties and interest can follow, and HMRC can move to enforcement.

In Scotland, HMRC commonly uses summary warrant procedures, which allow sheriff officers to recover debt through measures such as arresting funds in a company bank account or attaching assets. In England and Wales, enforcement agents can take control of goods. In both jurisdictions, HMRC can also start winding up proceedings.

Step 4: Take a Winding Up Petition Seriously

A winding up petition is a court application by a creditor asking for the company to be put into compulsory liquidation. HMRC is one of the most frequent petitioners.

In Scotland, petitions are raised in the Court of Session or the sheriff court, depending on the company's paid-up share capital. Once a petition is known about, banks often restrict or freeze the company's accounts, which can stop a business trading almost overnight.

If your company receives a petition, act immediately. Depending on the circumstances, it may be possible to pay the debt, dispute it if it is genuinely contested, negotiate with the creditor or propose a formal rescue procedure. Ignoring it almost always leads to a winding up order.

Step 5: Understand Your Formal Options

Where informal negotiation is not enough, there are several formal procedures. Each must be carried out by a licensed insolvency practitioner, authorised by a recognised professional body such as ICAS, ICAEW or the Insolvency Practitioners Association.

Company Voluntary Arrangement (CVA)

A CVA is a legally binding agreement with creditors to repay part or all of the company's debts over time while the business keeps trading. It needs the approval of creditors, and it suits companies with a viable core business weighed down by historic debt.

Administration

Administration places the company under the control of an administrator and gives it protection from creditor action while a rescue or sale of the business is explored.

Creditors' Voluntary Liquidation (CVL)

If the company cannot be saved, directors can choose to close it through a CVL. A licensed insolvency practitioner is appointed as liquidator to realise the assets, deal with creditors and bring the company to an orderly end. Choosing a CVL before a creditor forces compulsory liquidation gives directors more control over the process and shows they have acted responsibly.

Members' Voluntary Liquidation (MVL)

An MVL is only for solvent companies that can pay all their debts in full, typically where the owners are retiring or closing a business that has run its course.

Your Duties as a Director

Once a company is insolvent, or likely to become insolvent, directors must give proper weight to the interests of creditors. Continuing to trade and building up more debt when there is no reasonable prospect of avoiding insolvent liquidation can lead to personal liability for wrongful trading, and directors' conduct is reviewed after any liquidation, which can lead to disqualification.

Some practical points to keep in mind:

Taking advice early is the best way to protect yourself.

Where Company Relief Can Help

Company Relief (company-relief.co.uk) is a Glasgow-based business debt advisory firm that helps limited companies and their directors find a way through financial difficulty. Its focus is on the problems that most often push companies towards insolvency:

Company Relief offers a free initial consultation, and where a formal procedure such as a CVA or liquidation is the right answer, it works alongside licensed insolvency practitioners who carry out the appointment. Its website also publishes plain English guides for directors in Scotland, England and Wales, covering how to liquidate a limited company, what happens to directors when a company is dissolved, First Gazette notices for compulsory strike off, winding up petitions, failed Time to Pay arrangements and what an insolvency practitioner does.

Directors can contact Company Relief through its website or by phone on 0141 459 0636.

How to Choose the Right Adviser

  1. Check who will act. Only a licensed insolvency practitioner can be appointed to run a formal insolvency procedure. You can confirm a practitioner's licence on the Insolvency Service's official register.
  2. Ask about fees upfront. Find out what is free, what is charged and who pays the practitioner's fees.
  3. Look for experience with your problem. HMRC debt, IR35 and Bounce Back Loan issues each have their own pitfalls.
  4. Check Scottish knowledge. Court procedures and enforcement differ between Scotland and England, so make sure your adviser understands both where relevant.
  5. Be wary of guarantees. No honest adviser can promise that debts will disappear or that a director will face no consequences.

Frequently Asked Questions

Can HMRC close my company?

Yes. HMRC can present a winding up petition to the court, which can result in a compulsory liquidation order if the debt is not paid or resolved.

Will I be personally liable for my company's HMRC debt?

Usually not, because a limited company is a separate legal entity. Directors can become personally liable in some situations, such as personal guarantees, wrongful trading, misuse of company funds or certain HMRC personal liability notices.

How long does a Time to Pay arrangement last?

It depends on the amount owed and what the business can afford. HMRC agrees the length case by case, and it expects the company to stay up to date with new tax liabilities during the arrangement.

Is it too late to get help once a winding up petition has been issued?

Not necessarily, but time is very short. Directors should seek advice the same day, because options narrow quickly once a petition has been advertised.

Final Thoughts

HMRC debt does not have to end a business, but it rarely improves when ignored. The earlier a director acts, the more options remain open, from a simple Time to Pay arrangement to a CVA or an orderly liquidation. For directors in Glasgow and across Scotland, Company Relief offers a free first conversation to help work out which route makes sense.

To book a free consultation, visit company-relief.co.uk.

This guide is general information, not legal or financial advice. Researched in October 2026. Always take advice specific to your company's circumstances.