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How HMRC Recovers Debt

When a business or individual in the UK falls behind on tax payments, HM Revenue and Customs (HMRC) takes specific measures to recover the owed debts.

Understanding these procedures can help you navigate the complexities of tax debt and avoid severe consequences.

This article provides a comprehensive overview of the steps HMRC takes to recover debts and what you can do if you find yourself in this situation. 

How do HMRC Recover Debts

1. Initial Contact and Payment Requests

The first step in HMRC’s debt recovery process is typically an initial contact.

This could be in the form of a letter, phone call, or email, reminding you of the overdue tax payment and requesting immediate payment.

At this stage, it is crucial to respond promptly, either by paying the debt or contacting HMRC to discuss your situation. 

2. Late Payment Penalties and Interest

If the debt remains unpaid, HMRC will add penalties and interest to the amount owed.

The longer the debt remains unpaid, the more penalties and interest will accumulate.

These additional charges can significantly increase the total amount owed, making it even more challenging to pay off the debt. 

3. Time to Pay Arrangements

For those unable to pay their debt in full, HMRC may offer a “Time to Pay” arrangement.

This is an agreement that allows you to spread the cost of your tax bill into affordable monthly payments.

To apply, you must contact HMRC and provide details of your financial situation. Approval is not guaranteed and will depend on your circumstances and HMRC’s assessment. 

4. Enforcement Actions

If you do not respond to initial contact or fail to adhere to a Time to Pay arrangement, HMRC will escalate their recovery efforts through enforcement actions.

These can include: 

  • Debt Collection Agencies: HMRC may refer your debt to a debt collection agency, which will contact you to recover the owed amount. The agency will add their fees to your debt, increasing the total amount payable. 
  • Distraint (Seizure of Goods): HMRC has the power to seize your assets to recover the debt. This process, known as distraint, involves HMRC officers visiting your premises, listing valuable items, and ultimately selling them at auction if the debt remains unpaid. 
  • County Court Judgement (CCJ): HMRC can take you to court to obtain a County Court Judgement. A CCJ can negatively impact your credit rating, making it difficult to secure future credit. 
  • Charging Orders: For property owners, HMRC can apply for a charging order. This secures the debt against your property, meaning HMRC will be paid from the proceeds if the property is sold. 
  • Bankruptcy and Winding-Up Petitions: In extreme cases, HMRC may petition for your bankruptcy (for individuals) or winding up (for companies). This can result in the liquidation of your assets to pay off the debt. 

5. Insolvency Procedures

If your business is insolvent and unable to pay its debts, you may need to consider formal insolvency procedures such as a Company Voluntary Arrangement (CVA), Administration, or Liquidation. Each option has different implications for how debts are handled and can provide a structured way to deal with financial difficulties. 

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What to Do If You Owe HMRC

If you owe money to HMRC, taking immediate action is essential.

Here are steps you can take: 

  1. Communicate with HMRC: Always respond to communications from HMRC. Ignoring the issue will only escalate the situation.
  2. Seek Professional Advice: Consider seeking advice from a financial advisor, accountant, or insolvency practitioner. They can provide guidance on managing your debt and negotiating with HMRC.
  3. Explore Payment Options: Discuss possible payment options with HMRC, including Time to Pay arrangements.
  4. Review Your Finances: Assess your financial situation to understand your ability to pay and make necessary adjustments to your budget.


Understanding how HMRC recovers debts can help you manage your tax obligations more effectively and avoid severe consequences. If you find yourself in debt to HMRC, it is crucial to act promptly, seek professional advice, and explore all available options to resolve the issue. 

For personalised assistance and advice, contact Business Helpline. We specialize in supporting directors across the UK with corporate insolvency solutions, ensuring you receive the guidance needed to navigate financial uncertainty. 

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    Andy Slinger

    Andy is Head of Marketing for Business Helpline with a wealth of experience Marketing in the financial sector. He has a passion for helping business owners struggling with debts.

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