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If your company is already in HMRC arrears, you probably do not need another reminder that the debt exists.
You see it in your accounts. You think about it when another HMRC letter arrives. You may be making payments when cash allows, borrowing to cover the gaps or simply hoping that the next contract, funding round or stronger trading month will solve the problem.
Meanwhile, you may still be taking money from the company because your mortgage and household bills have not stopped. Those payments may be recorded as dividends even though profits have fallen. Your director’s loan account may already be overdrawn, or you suspect it will be once the accounts are brought up to date.
It is an uncomfortable position, but avoiding it does not protect the business or you personally.
HMRC arrears, uncertain tax figures and an overdrawn director’s loan account are not problems that improve through delay. The earlier you understand the complete position, the more opportunity you have to influence what happens next.
HMRC has consulted on introducing a new criminal offence for making a “reckless untrue statement or declaration” in relation to direct taxes, such as Income Tax, Corporation Tax and Capital Gains Tax.
The proposed maximum penalty is an unlimited fine, up to two years’ imprisonment, or both.
This proposal has attracted considerable criticism from tax professionals concerned about the boundary between criminal recklessness and an error made within a complicated tax system. However, it is important not to overstate what has happened.
At the time of writing this blog:
HMRC says “recklessness” would require evidence that a person recognised a risk that a statement might be untrue but unreasonably submitted it regardless. Carelessness – where a person ought to have known but did not actually recognise the risk – is intended to remain within the civil regime.
The distinction matters. Tax debt and tax accuracy are separate issues.
A company can submit accurate returns but be unable to pay the liabilities. That is primarily a cash-flow and creditor problem. A company can also make payments to HMRC while submitting inaccurate information. Paying something towards the debt does not correct the underlying return.
For directors already under pressure, the proposal is a timely warning: do not allow incomplete records, uncertain figures or unsupported assumptions to become another layer of risk.
No single warning sign determines whether a company can be rescued or should close.
But a combination of the following should trigger an immediate review:
These signs do not necessarily mean the company must enter insolvency. They do however mean that decisions should be based on current financial information, not hope.
A dividend is not simply another way to withdraw money from a limited company.
A company may only pay dividends from profits available for distribution. Directors should review the relevant accounts, record the decision properly and provide the required dividend documentation.
Where money has been withdrawn and labelled as dividends without sufficient distributable profits, the position can become complicated. Depending on the facts and accounting treatment, those payments may be challenged, treated as amounts owed by the director, or form part of wider claims if the company later enters liquidation.
This is particularly dangerous when the company is also accumulating HMRC arrears.
HMRC may be going unpaid while value continues to leave the business. A future liquidator will review the company’s records, transactions and director conduct. What felt like necessary personal drawings during a difficult month may later require detailed explanation and could create personal exposure.
If you are unsure whether recent payments were supported by sufficient profits, obtain advice and bring the records up to date. Do not continue authorising dividends simply because that is how withdrawals were treated previously.
A director’s loan account records money moving between a director and the company outside ordinary salary, properly declared dividends or reimbursed business expenses.
If you have taken more from the company than you have introduced or were entitled to receive, the account may be overdrawn. In practical terms, you may owe money back to the company.
If the company enters liquidation, an overdrawn director’s loan account is generally treated as an asset of the company. The liquidator has a duty to investigate it and may seek repayment for the benefit of creditors.
That can lead to:
An ODLA does not disappear because the company stops trading. Nor should a director assume that it can simply be written off before liquidation. Attempts to alter, conceal or retrospectively reclassify transactions can make the position worse.
The correct approach is to establish:
The headline balance is only the starting point.
A Time to Pay arrangement can allow a viable business to repay tax arrears through agreed instalments. But it is not automatic, and it is not suitable for every company.
HMRC will normally expect a credible explanation of:
A proposal that addresses historic arrears but leaves the company unable to pay new PAYE, VAT or Corporation Tax is unlikely to solve the underlying problem.
Before approaching HMRC, directors should understand the company’s cash flow, current liabilities, future tax obligations and other creditor commitments. A promise made simply to stop immediate enforcement can create further difficulty if it is broken shortly afterwards.
HMRC can agree payment arrangements where the circumstances support one. The challenge is not merely obtaining more time. It is demonstrating that the business has a viable route to paying both the arrears and its ongoing liabilities.
Borrowing is sometimes presented as the fastest way to remove HMRC pressure. It can also make the eventual position considerably worse.
A loan may clear the tax account, but it does not make an unviable business viable. It can replace HMRC arrears with:
Before borrowing, directors should ask whether the business can afford the new facility while also paying future taxes and ordinary trading costs. If the answer depends on optimistic forecasts or a single uncertain contract, further finance may be postponing the problem rather than resolving it.
Seeking advice does not commit a director to liquidation. Nor does wanting to save the business mean it should continue trading at any cost.
There are two broad strategic directions.
Where the underlying business is viable, the strategy may involve:
The objective is not merely to delay enforcement. It is to place the business on a footing from which it can meet both historic and future liabilities.
Where the company is no longer viable, continuing to trade may increase the loss to HMRC and other creditors while exposing the director to further risk.
A controlled closure should be considered with a clear understanding of:
Bell & Company is not an insolvency practitioner and does not act for the company’s creditors. We work with directors and individuals to understand the business and personal consequences, develop a debt strategy and, where a formal insolvency process is appropriate, help them prepare for what may follow.
The aim is to make an informed decision while you still have choices, not after HMRC, a lender or a liquidator has dictated the timetable.
One technology and software consultancy owner approached Bell & Company with more than £400,000 of combined business and personal exposure.
The position included:
The owner feared enforcement, liquidation and personal bankruptcy. The company had suffered a major contract collapse, but the underlying business still had the potential to trade successfully if the immediate creditor pressure could be stabilised.
Bell & Company reviewed the complete business and personal position, developed an evidence-based strategy and managed creditor communications.
The outcome was significant:
This was not achieved by ignoring the debt or promising payments the business could not afford. It required an accurate assessment of viability, affordability, creditor risk and the director’s personal exposure.
Every case depends on its own facts. Previous outcomes do not guarantee the result of another case.
Debt does not remain on a balance sheet. It follows directors home.
One Bell & Company client, whose business was wound up after Covid, described living under the “crippling shadow” of substantial personal debt before seeking help.
Following a negotiated full and final settlement that was within reach, the client said:
“I am now, for the first time in my adult life, completely debt-free. I could not recommend their professionalism and compassion highly enough.”
That outcome came after the business had already closed. It is a reminder that company insolvency can be the beginning of a director’s personal debt problem, not necessarily the end of it.
If your business owes HMRC, has an overdrawn director’s loan account or is relying on borrowing simply to continue, you do not need to know the solution before asking for help.
You do need to establish the true position.
Bell & Company can help you assess:
The earlier the position is reviewed, the more opportunity there may be to protect the business, your assets and your personal position.
Take control. Regain control. Understand your options before HMRC, a lender or a future liquidator controls them for you.
Contact Bell & Company for a confidential initial case review on 0333 305 4331, or request a case review.
A limited company’s tax debts do not ordinarily become the director’s personal debts simply because the company cannot pay. Personal exposure can arise in particular circumstances, including certain statutory notices, wrongdoing, Personal Guarantees for borrowing used to pay tax, an overdrawn director’s loan account or claims brought following insolvency. The facts must be assessed individually.
Yes. HMRC can agree to payment by instalments where it considers the proposal affordable and appropriate. The business will normally need to explain why the debt arose, demonstrate what it can pay and show that ongoing taxes can be kept up to date.
HMRC may cancel the arrangement and resume recovery action. Contacting HMRC promptly is important, but directors should also reassess whether the company remains viable rather than repeatedly agreeing payments it cannot sustain.
Potentially. A company can only pay dividends from profits available for distribution. Where withdrawals have been labelled as dividends without sufficient profits or proper documentation, their treatment may be challenged, and they may contribute to a claim against the director. The precise accounting and legal position should be reviewed.
Not ordinarily. In liquidation, an ODLA is generally an asset of the company. The liquidator may investigate the balance and seek repayment for creditors, although the accuracy of the account and the director’s overall circumstances may need to be examined.
Rory McGimpsey
Head of Corporate Debt Solutions
Rory is the Head of Corporate Debt Solutions at Bell & Company, specialising in high-stakes liability negotiations and commercial dispute resolution for high-net-worth individuals and company directors. With a proven track record of resolving millions of pounds in corporate liabilities, Rory focuses on complex insolvency challenges, including overdrawn Directors’ Loan Accounts and personal guarantee enforcement. He works closely alongside liquidators, Insolvency Practitioners, and Trustees to negotiate pragmatic, commercially viable settlements that protect his clients' financial interests.
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