What can hmrc do if you do not pay your tax bill

Ignoring a tax bill is never advisable, and many business owners and individuals across the Midlands don’t realise just how serious HMRC can be when chasing unpaid tax. Whether you’ve missed a Self Assessment deadline or your company owes Corporation Tax, understanding what HMRC can do will help you take the right action before penalties spiral. This guide explains the powers HMRC has and the steps they typically take to recover outstanding tax.

Initial Contact and the First 30 Days

When you miss a tax payment deadline, HMRC won’t immediately take enforcement action. They’ll usually send you a notice of assessment and a demand for payment, giving you 30 days to settle the bill. If you don’t pay within this window, HMRC may add a surcharge to your debt.

For Self Assessment, if you pay late, you’ll face an immediate 5% surcharge on any unpaid tax. If you still haven’t paid after six months, another 5% surcharge applies, and the same again after 12 months. For example, if you owe £2,000 in Self Assessment tax and pay one year late, you could face additional penalties totalling £600 on top of your original debt.

It’s worth noting that HMRC does have discretion in some cases. If you have a reasonable excuse for late payment—such as a bereavement or serious illness—they may reduce or withdraw penalties. However, forgetfulness or cash flow problems rarely qualify, so don’t rely on this.

Statutory Demands and County Court Action

If you continue to ignore HMRC’s demands, they can apply for a County Court judgment against you. Before this, they may issue a Statutory Demand under the Courts and Legal Services Act 1990, giving you 21 days to pay or reach an agreement. Ignoring a Statutory Demand is serious and can lead to bankruptcy proceedings if you’re an individual or winding-up proceedings if you’re a limited company.

A County Court judgment will damage your credit rating and make it harder to borrow money in future. It also becomes a matter of public record, which can affect business reputation.

Distraint and Asset Seizure

One of HMRC’s most powerful enforcement tools is distraint (sometimes called distress). This allows HMRC officers to enter your business premises and seize goods of sufficient value to cover the tax debt, plus the costs of the seizure itself. Distraint can be applied without a court order once certain conditions are met, including a period of non-payment.

The goods seized are typically sold at auction, and the proceeds go towards your tax bill. This can be devastating for businesses, as HMRC may seize stock, equipment, or vehicles. There are some protections—for example, certain domestic items cannot be taken from your home—but business assets are fair game.

Bankruptcy and Company Insolvency

For individuals, persistent non-payment can result in a bankruptcy petition. HMRC can petition the court if you owe more than £5,000 and show no signs of paying. Bankruptcy has serious consequences: you may lose your home, your assets will be administered by a trustee, and you’ll face restrictions on borrowing and working in certain professions.

For limited companies, HMRC can petition for winding-up if the company owes tax and cannot pay. This results in the company being dissolved, directors losing control, and creditors (including HMRC) receiving whatever remains after costs.

Director Liability and Personal Responsibility

If your limited company owes tax but fails to pay, HMRC can sometimes pursue company directors personally under various provisions. For instance, if PAYE or VAT hasn’t been paid, directors can face personal liability under the “director’s liability” rules. This extends the debt beyond the company’s assets to the directors themselves.

What You Should Do Now

If you’re behind on tax payments, the best course of action is to contact HMRC immediately. You can negotiate a Time to Pay arrangement, allowing you to settle the debt in instalments. HMRC is often willing to work with taxpayers who engage proactively, but they have little patience with those who ignore letters and demands.

Alternatively, if your financial situation is genuinely difficult, you might explore whether your circumstances qualify for relief, or whether a formal debt arrangement is appropriate.

The key message is simple: don’t ignore tax bills. The longer you delay, the more expensive the debt becomes, and the more serious the consequences. Early action protects your business, your personal finances, and your reputation.

For tailored advice, contact Severn Accounting — we’re here to help.