What Tax Debts Can Be Financed
Finance can be arranged to settle almost any outstanding liability owed to HMRC. The most common debts presented for financing are Corporation Tax, VAT, PAYE and National Insurance, and Stamp Duty Land Tax. Beyond these, finance is also used to settle amounts arising from HMRC tax investigations and, in urgent situations, to fund payments required to prevent or reverse a winding up petition.
| Tax type | Common cause | Urgency level |
|---|---|---|
| Corporation Tax (CT) | Profit higher than anticipated; insufficient provisions set aside | Medium — 30-day payment window after assessment |
| VAT | Quarter-end liability; disputed input VAT; deferred pandemic arrears | High — HMRC pursues VAT debts quickly |
| PAYE / National Insurance | Payroll arrears; HMRC compliance review; CJRS clawback | High — can trigger personal liability for directors |
| Stamp Duty Land Tax (SDLT) | Deferred on property transactions; commercial property reclassification | Medium — deadlines set at point of transaction |
| Investigation settlements | HMRC investigation resulting in an agreed settlement figure | High — settlement deadline is fixed |
| Winding up petition (WUP) | HMRC has escalated an unpaid debt to court-level enforcement action | Critical — gazette publication within days |
The common thread across all of these is that HMRC does not negotiate indefinitely. Once an enforcement action has begun, the options available to a business narrow rapidly. Acting at the earliest possible stage gives the most choice and the lowest overall cost.
How HMRC Escalates
HMRC follows a defined escalation process. Understanding where a business sits within that process determines which finance options remain available and how quickly they must be deployed.
- 01
Stage 1: Tax assessment and payment demand
HMRC issues a formal assessment and demands payment by a specific date. At this stage, Time to Pay may still be available and negotiation is straightforward. Finance arranged now will be at the most competitive terms.
- 02
Stage 2: Reminder and surcharges
If the payment deadline passes, HMRC issues reminder letters and applies late payment surcharges and interest. HMRC interest accrues at Bank Rate plus 2.5 percentage points. The case may be transferred to the HMRC Debt Management team.
- 03
Stage 3: Time to Pay refusal
If the business contacts HMRC to arrange instalments but a TTP is refused — due to previous arrangements, size of debt, or compliance history — the debt is classified as unmanageable. At this point, specialist finance is typically the only route to prevent escalation.
- 04
Stage 4: Distraint (taking control of goods)
HMRC enforcement officers can attend business premises and take control of goods (previously known as distraint). Assets may be removed and sold. This can disrupt operations severely and can become public knowledge locally.
- 05
Stage 5: Direct Recovery of Debt
For debts over £1,000 where TTP has been refused, HMRC can issue a notice directly to the business's bank, instructing it to transfer funds from the account without a court order. This can cause immediate cashflow collapse.
- 06
Stage 6: Winding up petition
The most severe enforcement step. HMRC presents a petition to court to wind up the company. Once issued, it is advertised in the London Gazette within days. Banks frequently freeze accounts on petition. The company has a very narrow window to settle the debt and apply for the petition to be dismissed.
Earlier action means more options
Finance arranged at Stage 1 or 2 is straightforward and competitively priced. Finance arranged at Stage 5 or 6 is still possible in many cases, but requires faster lenders, carries higher rates, and involves legal costs to resolve the enforcement action. The cost of delay is almost always higher than the cost of acting early.
Secured vs Unsecured Finance for HMRC Debts
Two main routes exist for financing an HMRC liability. The right choice depends on whether property equity is available and how quickly the funds are needed.
| Factor | Secured (property-backed) | Unsecured (trading-based) |
|---|---|---|
| Security required | Property equity (first or second charge) | None — assessed on trading performance |
| Credit requirements | Property equity is primary; adverse credit accepted | Trading history and bank statements; adverse credit considered by specialist lenders |
| Speed to funds | 2 to 3 weeks (valuation required) | 24 to 72 hours for established businesses |
| Loan range | £25,000 to £10m+ | £10,000 to £500,000 typically |
| Rate | 0.75 to 1.5% per month (short-term bridging) | 1.5 to 5% per month depending on risk profile |
| Best for | Larger debts, directors with property, WUP situations | Smaller debts, fast resolution, no property available |
Where a director owns investment or commercial property with usable equity, the secured route is almost always the better choice: lower rates, larger facility sizes, and the credit assessment is focused on the property rather than the company's financial history. The unsecured route is the right tool when speed is the absolute priority or when no property equity exists.
Winding Up Petitions from HMRC
A winding up petition is a critical emergency
Once HMRC presents a winding up petition to the court, the consequences begin almost immediately. The petition is advertised in the London Gazette within days of issue. Once advertised, banks are likely to freeze the company's accounts. Key suppliers and customers who see the notice may suspend credit terms or cease trading with the company entirely. The window to act is extremely narrow: typically seven days from gazette publication before account freezing becomes routine.
The mechanics of resolving a WUP situation through finance are as follows. A lender must be identified who can move within the timescale. Funds are drawn and used to pay the outstanding HMRC debt in full. An application is then made to the court for the petition to be dismissed (or the hearing adjourned pending settlement). HMRC will typically consent to dismissal once the debt is cleared, but the legal process must still be completed.
Specialist brokers with experience in WUP situations can identify lenders who have the internal processes to move within 48 to 72 hours for unsecured facilities, or within 5 to 10 days for secured facilities where a desktop valuation can be used. Standard lenders cannot meet these timescales and should not be approached for WUP situations.
What you need to have ready when a WUP has been issued
- ✓Copy of the winding up petition document
- ✓Confirmation of the petition hearing date (this is the hard deadline)
- ✓Full details of the outstanding HMRC debt and any accumulated interest
- ✓Six months of business bank statements
- ✓Details of any property equity available (if pursuing the secured route)
- ✓Director ID and proof of address
- ✓Brief written explanation of how the debt arose and why it was not settled earlier
HMRC Time to Pay Arrangements
A Time to Pay (TTP) arrangement allows a business to spread its HMRC liability over an agreed period, typically 6 to 12 months, through monthly instalments. HMRC does not charge a separate fee for granting a TTP, though interest continues to accrue on the outstanding balance throughout the arrangement period.
TTPs are granted at HMRC's discretion and are becoming harder to obtain in several circumstances: where the business has previously had a TTP that was not adhered to, where the debt is substantial in relation to the company's size, where enforcement action has already begun, or where the compliance history of the company is poor.
| Situation | Time to Pay | Specialist finance |
|---|---|---|
| HMRC willing to grant TTP | Best option — cheapest route | Not needed |
| TTP previously refused | Unlikely to be granted again | Appropriate route |
| Winding up petition issued | Not available at this stage | Critical — urgent action needed |
| Business needs certainty of settlement | Discretionary — can be withdrawn | Provides certainty; debt cleared in full |
| Debt is large (£500k+) | HMRC may refuse or limit term | Secured finance often more practical |
| Director wants to protect credit / suppliers | Does not prevent gazette if WUP already issued | Settles debt immediately; removes risk |
Always try TTP first where circumstances allow
If no enforcement action has been taken and the company has a reasonable compliance history, contacting HMRC to request a TTP before approaching any lender is the right first step. If TTP is refused or insufficient to meet the situation, specialist finance is the immediate next action.
Cost Comparison: Finance vs HMRC Penalties
The most common objection to using finance to settle an HMRC debt is the cost of the finance. Placed in context, the comparison usually favours finance once HMRC penalties and the business cost of enforcement are factored in.
| Cost element | HMRC route (no finance) | Finance route |
|---|---|---|
| Late payment interest | Bank Rate + 2.5% p.a. (currently ~7.5% p.a.) | None — debt cleared |
| Late payment penalties (VAT) | Up to 15% of unpaid tax | None — debt cleared |
| Distraint / enforcement costs | Officer attendance costs added to debt | None — avoided |
| WUP legal costs | HMRC's petition costs added to debt | Legal cost to dismiss petition (£2,000–£5,000) |
| Bank account freeze | Can halt trading entirely | Avoided — accounts remain operational |
| Finance cost (secured) | N/A | 0.75–1.5% per month on facility |
| Finance cost (unsecured) | N/A | 1.5–5% per month on facility |
| Arrangement fee | N/A | 1.5–2.5% of facility |
For a business facing a £200,000 VAT liability that has attracted a 10% late payment penalty and is approaching winding up petition stage, the accumulated cost with HMRC could reach £230,000 or more, plus enforcement costs and the operational damage of frozen accounts. A secured bridging facility at 1% per month for three months to settle and then refinance would cost approximately £6,000 to £8,000 in interest and fees at that level, with no operational disruption. The maths frequently favours finance.
FAQs
Can HMRC take money from my business bank account?
Yes, via a Direct Recovery of Debt (DRD) power. HMRC can issue a notice to your bank to take funds from your business account without a court order for debts over £1,000 where Time to Pay has been refused. Acting before this stage is reached is critical.
Will a winding up petition be made public?
Yes. Once a winding up petition is issued by HMRC, it is advertised in the London Gazette. This is publicly visible, can cause banks to freeze accounts, and may trigger concern from suppliers and customers. Finance to settle the underlying debt and apply for the petition to be dismissed is time-critical once a WUP is issued.
Can I use HMRC tax finance if my company has CCJs?
Yes, on the secured route. Secured tax finance is assessed primarily on the property equity and exit strategy, not the director or company credit history. CCJs, defaults and even a previous insolvency can be considered. The unsecured route requires stronger trading evidence but some specialist lenders consider adverse credit here too.
Does HMRC charge interest on unpaid tax?
Yes. HMRC interest on unpaid tax currently runs at Bank Rate plus 2.5 percentage points. In addition, late payment penalties of up to 15% of the unpaid tax can be applied depending on the type of tax and how overdue it is. In most cases, the cost of arranging finance to settle is lower than the accumulated HMRC interest and penalties.
What is a Time to Pay arrangement and when is it better than finance?
A Time to Pay arrangement is an instalment agreement negotiated directly with HMRC, typically over 6 to 12 months. If HMRC will grant a TTP, it is often the cheapest route. However, HMRC is increasingly refusing TTPs for repeat cases, for businesses with existing enforcement action, or where the debt is very large. Finance becomes preferable where a TTP has been refused, where the winding up petition has been issued, or where the business needs certainty of settlement rather than relying on HMRC discretion.