If you do not pay your tax bill and do not contact HMRC to arrange a payment plan, HMRC can use increasingly serious enforcement measures to recover what is owed. The process typically begins with letters and phone calls, but if these are ignored, HMRC can take legal action including seizing goods, obtaining a county court judgment, or applying to wind up a company. The key is to act early rather than waiting for enforcement to begin.
What happens when you miss a payment?
After the payment deadline passes, HMRC begins applying late payment interest and, from day 15, late payment penalties. HMRC will contact you by letter and, in some cases, by phone, to ask you to pay or contact them to discuss a payment arrangement.
If you do not respond, HMRC passes the debt to its Debt Management and Banking department, which is responsible for collecting unpaid tax. The enforcement options available to HMRC escalate over time.
HMRC's enforcement options
HMRC has a range of tools available to collect unpaid tax without taking court action first. For limited companies and sole traders, the options differ slightly, but the general escalation path is similar.
Distraint (taking goods)
HMRC can instruct enforcement officers (formerly known as bailiffs) to visit your premises and take goods to sell at auction to recover the debt. This power, known as distraint, can be used without a court order in most circumstances. HMRC must give you a minimum of 7 days' notice before goods are removed.
Goods seized can include business equipment, vehicles, and stock. Personal items required for day-to-day living and tools needed for your trade are generally exempt.
County court judgment (CCJ)
HMRC can obtain a county court judgment against you for the amount owed. A CCJ has serious consequences for your credit rating and your ability to borrow. Once obtained, HMRC can use the judgment to pursue further enforcement measures, including charging orders on property.
Deducting from salary or pension (code adjustment)
For individuals who are also employed, HMRC can adjust your PAYE tax code to collect outstanding debt from your salary. This is available for debts up to approximately £3,000. The adjustment means less take-home pay until the debt is cleared. HMRC can also recover debt from pension income in the same way.
Direct recovery from bank accounts
HMRC has the power to recover tax debts directly from bank or building society accounts in certain circumstances. This requires the taxpayer to owe at least £1,000 and for HMRC to have made reasonable attempts to collect. A minimum of £5,000 must be left in the account after recovery.
Winding-up petition (companies)
For limited companies with unpaid tax, HMRC can apply to the courts to have the company wound up. A winding-up petition is a serious step and is typically used as a last resort, but HMRC has used this power increasingly in recent years as part of its debt recovery strategy. If a petition is granted, a liquidator is appointed to sell the company's assets and repay creditors.
How to stop enforcement action
The most effective way to stop enforcement is to engage with HMRC as early as possible. Options include:
- Setting up a Time to Pay arrangement before enforcement begins. See our TTP guide for full details.
- Making a payment, even a partial one, which demonstrates willingness to engage.
- Appointing a tax adviser or insolvency practitioner to negotiate on your behalf.
- If a winding-up petition has been issued, applying to the court for an adjournment while a TTP is being arranged.
When does HMRC write off tax debt?
HMRC very rarely writes off tax debt. The circumstances in which HMRC may consider it include cases of genuine insolvency with no assets, severe and permanent ill health, or situations where collection costs would exceed the debt itself. Simply being unable to pay does not qualify for a write-off. If you believe you may qualify, seek professional advice before approaching HMRC, as the process requires supporting evidence.